U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF
SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
PIONEER POWER, INC.
(Name of small business issuer in its charter)
Delaware 13-4046179
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
122 East 42nd Street, Suite 1115
New York, New York 10168
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, (212) 867-0700
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of class)
Common Stock Purchase Warrants
(Title of class)
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PIONEER POWER, INC.
CROSS-REFERENCE SHEET
SHOWING LOCATION IN INFORMATION STATEMENT OF
ELECTRIC & GAS TECHNOLOGY, INC. OF INFORMATION
REQUIRED BY ITEMS ON FORM 10-SB
Form 10-SB Location in
Item Number Item Caption of Form 10-SB Information Statement
- ----------- -------------------------- ---------------------
1. Description of Business Business of Pioneer
2. Management's Discussion and Management's Discussion and
Analysis or Plan of Operation Analysis of Financial
Conditions and Results of
Operations
3. Description of Property Business of Pioneer--
Facilities
4. Security Ownership of Certain Principal Shareholders of
Beneficial Owners and Management Pioneer
5. Directors, Executive Officers, Management of Pioneer;
Promoters and Control Persons Principal Shareholders of
Pioneer
6 Executive Compensation Management of Pioneer
7. Certain Relationships and Related Management of Pioneer;
Transactions Related Transactions
8. Legal Proceedings N/A
9. Market for Common Equity and Summary - Trading Market
Related Stockholder Matters for the Pioneer Common
Stock and Warrants
10. Recent Sales of Unregistered Background and Reasons for
Securities Distribution
11. Description of Securities Description of Securities
of Pioneer
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12. Indemnification of Directors and Management of Pioneer--
Officers Indemnification of
Directors and Officers
13. Financial Statements Management's Discussions
and Analysis of Financial
Condition and Results of
Operations; Index to
Financial Statements
14. Changes in and Disagreements With N/A
Accountants
15. Financial Statements and Index to Financial
Exhibits Statements
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INDEX TO EXHIBITS
Sequentially
Exhibit Numbered
Number Description Page
- ------ ----------- ----
2 Amended and Restated Asset Exchange Agreement among
Electric & Gas Technology, Inc., Provident Pioneer
Partners, L.P. and Pioneer Power, Inc.
*3.1 Amended and Restated Certificate of Incorporation of
Pioneer Power, Inc.
*3.2 Bylaws of Pioneer Power, Inc.
*4.1 Specimen Common Stock Certificate
*4.2 Specimen Warrant Certificate
*4.3 Form of Warrant Agreement
*10.1 Amended and Restated Promissory Note
*10.2 Loan Agreement between BNY Financial Corporation - Canada
and PTL
*10.3 Form of 1999 Stock Option Plan**
*21 Subsidiaries of the Registrant
*27.1 Financial Data Schedule
* To be filed by amendment.
** Management contract, compensatory plan or other arrangement in which one or
more directors or executive officers of the registrant participate.
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SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed by the undersigned,
thereunto duly authorized.
Date: April 30, 1999 PIONEER POWER, INC.
By: /s/Nathan J. Mazurek
---------------------------
Nathan J. Mazurek
President, CEO
and Director
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PRELIMINARY INFORMATION STATEMENT
SUBJECT TO COMPLETION, DATED ________________, 1999
[ELGT LOGO]
ELECTRIC & GAS TECHNOLOGY, INC.
INFORMATION STATEMENT RELATING TO THE DISTRIBUTION TO ELGT
SHAREHOLDERS OF STOCK AND WARRANTS OF PIONEER POWER, INC.
We are sending you this Information Statement to describe the distribution
to shareholders of Electric & Gas Technology, Inc. ("ELGT") of approximately 1.6
million shares of Common Stock, par value $0.01 per share, of Pioneer (the
"Pioneer Common Stock") and approximately 533,280 warrants to purchase Pioneer
Common Stock (the "Pioneer Purchase Warrants"). In this distribution, you will
receive one share of Pioneer Common Stock and .3333 Pioneer Purchase Warrant for
each five shares of ELGT Common Stock owned by you at the close of business on
the record date of _____________, 1999 (the "Distribution"). The number of
shares of ELGT Common Stock you own will not change as a result of the
Distribution. This document provides you with detailed information about the
Distribution and about Pioneer Power, Inc., a Delaware corporation ("Pioneer").
The Distribution will be made on or about _____________, 1999.
No vote of ELGT shareholders is required in connection with the
Distribution. We are not asking for a proxy and we ask you not to send us a
proxy.
Pioneer will apply to have the Pioneer Common Stock and Pioneer Purchase
Warrants included for quotation on the OTC Bulletin Board under the symbol
"________."
The Distribution of the Pioneer Common Stock and Pioneer Purchase Warrants
will be taxable to you as a distribution pursuant to Section 301 of the Internal
Revenue Code. Please read the information set forth under the caption "Federal
Income Tax Consequences of the Distribution" herein and consult your tax advisor
with respect to the income tax consequences of the Distribution to you.
Pioneer will manufacture and distribute liquid filled electric power
transformers. After the Distribution, approximately 80% of the outstanding
Pioneer Common Stock and Pioneer Purchase Warrants will be owned by Provident
Pioneer Partners, L.P., a Delaware limited partnership ("Provident"). The
general partner of Provident will manage Pioneer under certain management
arrangements described in this Information Statement.
We encourage you to read this document carefully to learn more about the
Distribution and Pioneer. ELGT shareholders should carefully consider the
matters discussed under the section entitled "Risk Factors" in this Information
Statement.
This Information Statement is not an offer to sell or the solicitation of
an offer to buy any securities.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be distributed or
determined if this Information Statement is truthful or complete. Any
representation to the contrary is a criminal offense.
The date of this Information Statement is _________, 1999
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TABLE OF CONTENTS
QUESTIONS AND ANSWERS ABOUT THE
DISTRIBUTION AND PIONEER .............................................. 1
SUMMARY ................................................................... 4
FORWARD-LOOKING STATEMENTS ................................................ 8
RISK FACTORS .............................................................. 8
INFORMATION CONCERNING ELGT ............................................... 11
BACKGROUND AND REASONS FOR DISTRIBUTION ................................... 11
FEDERAL INCOME TAX CONSEQUENCES
OF THE DISTRIBUTION ................................................... 12
BUSINESS OF PIONEER ....................................................... 14
Industry Overview ..................................................... 14
Products .............................................................. 15
Customers ............................................................. 16
Competition ........................................................... 17
Raw Materials ......................................................... 17
Marketing and Sales ................................................... 17
Facilities ............................................................ 17
Employees.............................................................. 17
Environmental ......................................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS ......................... 19
MANAGEMENT OF PIONEER ..................................................... 22
Executive Compensation ................................................ 23
1999 Stock Option Plan ................................................ 23
Indemnification of Directors and Officers ............................. 24
RELATED TRANSACTIONS ...................................................... 25
PRINCIPAL SHAREHOLDERS OF PIONEER ......................................... 25
DESCRIPTION OF SECURITIES OF PIONEER ...................................... 26
Authorized Capital Stock .............................................. 26
Description of Common Stock ........................................... 26
Description of Preferred Stock ........................................ 27
Pioneer Purchase Warrants ............................................. 27
Reports to Shareholders ............................................... 28
Transfer and Warrant Agent ........................................... 28
LEGAL MATTERS ............................................................. 28
EXPERTS ................................................................... 28
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES ............................... 29
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QUESTIONS AND ANSWERS
ABOUT THE DISTRIBUTION AND PIONEER
To avoid confusion, as used in this Information Statement, "ELGT" means
Electric & Gas Technology, Inc., "Provident" means Provident Pioneer Partners,
L.P., "Pioneer" means Pioneer Power, Inc., and "PTL" means Pioneer Transformers
Ltd. Except where the context otherwise requires, all references to Pioneer
include PTL.
Q: What is the purpose of the Distribution?
A: To satisfy one of the conditions of the Amended and Restated Asset
Exchange Agreement among ELGT, Provident and Pioneer. See "Background and
Reasons for Distribution," page 11.
Q: What do I get in the Distribution?
A: You will receive one share of Pioneer Common Stock and .3333 Pioneer
Purchase Warrant for every five ELGT shares you own when the Distribution
occurs. Pioneer will not issue any fractional share or warrant. The number
of Pioneer shares and warrants you receive will be rounded up to the
nearest whole number.
Q: When will the Distribution occur?
A: ELGT expects the Distribution to occur on or about ______________, 1999.
Q: What are my shares of Pioneer Common Stock and Pioneer Purchase Warrants
worth?
A: The value of the Pioneer Common Stock and Pioneer Purchase Warrants to be
included in the Distribution has been estimated to be $0.625 per share by
ELGT's Board of Directors in connection with its approval of the Asset
Exchange Agreement and Distribution. The actual trading value of the
Pioneer Common Stock may be higher or lower than the estimated value and
will depend on many factors. The ELGT Board has ascribed no value to the
Pioneer Purchase Warrants. Until an orderly trading market develops, the
market price for Pioneer Common Stock and Pioneer Purchase Warrants may
fluctuate significantly. Please obtain current market quotations prior to
deciding whether to purchase or sell Pioneer Common Stock or Pioneer
Purchase Warrants
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Q: Do I have to pay taxes on the Pioneer Common Stock and Pioneer Purchase
Warrants which I receive in the Distribution?
A: Yes. The Distribution will be treated as a dividend and the fair market
value of the Pioneer Common Stock and Pioneer Purchase Warrants you
receive in the Distribution will be taxed to you as ordinary income. In
connection with its approval of the Asset Exchange Agreement and
Distribution, the ELGT Board estimated the value of each share of Pioneer
Common Stock to be $0.625 per share; the Board ascribed no value to the
Pioneer Purchase Warrants. To review the tax consequences to you in more
detail, see "Federal Income Tax Consequences of the Distribution."
Q: What do I have to do to participate in the Distribution?
A: Stockholder approval is not required for the Distribution to occur. You
need not do anything to participate in the Distribution.
Q: When will I receive my Pioneer Common Stock and Pioneer Purchase Warrants?
A: If you are a record owner of ELGT stock, your Pioneer Common Stock and
Pioneer Purchase Warrants will be registered in book-entry form in the
records of Pioneer's transfer agent. Following the Distribution, Pioneer
will deliver certificates to you upon request. If you own your ELGT stock
in street name, your Pioneer Common Stock and Pioneer Purchase Warrants
should be credited to your brokerage account; contact your broker for more
information.
Q: When will I be able to buy and sell Pioneer Common Stock and Pioneer
Purchase Warrants?
A: You may buy and sell Pioneer Common Stock and Pioneer Purchase Warrants
once the Distribution occurs. You should consult your broker or financial
advisor before you attempt to sell your Pioneer Common Stock and Pioneer
Purchase Warrants.
Q: Where will the Pioneer Common Stock and Pioneer Purchase Warrants trade?
A: ELGT expects trading in the Pioneer Common Stock and Pioneer Purchase
Warrants to begin on the OTC Bulletin Board following the Distribution.
Q: Will Pioneer pay dividends on its shares of Pioneer Common Stock?
A: Pioneer does not currently intend to pay any cash dividends, but rather
intends to reinvest available cash in its business.
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Q: What will be the relationship between Pioneer and ELGT after the
Distribution?
A: ELGT will continue to own approximately 400,000 shares of Pioneer Common
Stock and approximately 133,320 Pioneer Purchase Warrants. The 400,000
shares and 133,320 warrants will represent approximately 4% of Pioneer's
outstanding shares of Pioneer Common Stock and Pioneer Purchase Warrants,
respectively.
Q: Whom should I call with questions?
A: If you have questions about the Distribution or if you would like
additional copies of this document or any document referred to, you should
contact Edmund W. Bailey, ELGT's Chief Financial Officer, at 972-934-8797.
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SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand this
transaction fully and for a more complete description of the legal terms of this
transaction, you should carefully read the entire Information Statement.
Distributing Company Electric & Gas Technology, Inc., a Texas
corporation ("ELGT").
Securities ELGT will distribute (the "Distribution") to the ELGT
to be Distributed shareholders approximately 1.6 million shares of Common
Stock, par value $0.01 per share ("Pioneer Common Stock"),
of Pioneer Power, Inc., a Delaware corporation
("Pioneer"), and approximately 533,280 warrants to
purchase Pioneer Common Stock ("Pioneer Purchase
Warrants").
The Pioneer Common Stock to be distributed will represent
approximately 16% of the outstanding Pioneer Common Stock
and Pioneer Purchase Warrants. The Pioneer Purchase
Warrants will be initially exercisable at $4 per share.
After the Distribution, ELGT will continue to own
approximately 400,000 shares of Pioneer Common Stock and
approximately 133,320 Pioneer Purchase Warrants,
representing approximately 4% of the outstanding Pioneer
Common Stock and Pioneer Purchase Warrants.
No consideration will be paid by shareholders of ELGT nor
will they be required to surrender or exchange shares of
ELGT Common Stock or take any other action to receive
shares of Pioneer Common Stock and Pioneer Purchase
Warrants in the Distribution.
Distribution Ratio; One share of Pioneer Common Stock and .3333 Pioneer
Factional Shares Purchase Warrant for every five shares of ELGT Common
Stock. The number of shares of Pioneer Common Stock and
Pioneer Purchase Warrants to be distributed to each ELGT
shareholder will be rounded to the nearest whole number.
No fractional shares of Pioneer Common Stock or Pioneer
Purchase Warrants will be distributed. ELGT will provide
any shares and warrants required for purposes of
"rounding-up."
Record Date The Record Date for the Distribution is the close of
business on ______, 1999.
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Distribution Date The Distribution is expected to occur at the close of
business on the Distribution Date, i.e., on or about
____________, 1999. On or about the Distribution Date, the
Distribution Agent will commence mailing account
statements reflecting ownership of shares of Pioneer
Common Stock and Pioneer Purchase Warrants to holders of
ELGT Common Stock as of the close of business on the
Record Date.
Distribution Agent; American Stock Transfer & Trust Company will serve as the:
Transfer Agent and (1) Distribution Agent for the Distribution; (2) transfer
Registrar; Warrant agent and registrar ("Transfer Agent") for the Pioneer
Agent Common Stock; and (3) Warrant Agent for the Pioneer
Purchase Warrants. The address of American Stock
Transfer & Trust Company is 40 Wall Street, New York,
New York 10005, and its telephone number is 212-936-5100.
Direct (Book-entry) ELGT shareholders of record will initially have
Registration; Share their ownership of Pioneer Common Stock and Pioneer
and Warrant Purchase Warrants registered only in book-entry form in
Certificates which no certificates are issued. On the Distribution
Date, each ELGT shareholder as of the close of business
on the Record Date will be credited through book-entry
in the records of the Transfer Agent with the number
of shares of Pioneer Common Stock and Pioneer
Purchase Warrants distributed to such shareholder. Each
ELGT shareholder will receive an account statement
indicating the number of shares of Pioneer Common Stock
and Pioneer Purchase Warrants that the shareholder owns.
ELGT shareholders who hold their ELGT stock in street name
will have their Pioneer Common Stock and Pioneer Purchase
Warrants credited to their brokerage accounts. Following
the Distribution Date, any ELGT shareholder may obtain at
any time without charge a certificate to represent his
Pioneer securities.
Federal Income Tax It is expected that the Distribution will be taxable
Consequences to each ELGT shareholder as a distribution under
Section 301 of the Internal Revenue Code of 1986, as
amended. ELGT will not incur any taxable gain or loss as a
result of the Distribution. ELGT shareholders will be
taxed on the shares of Pioneer Common Stock and Pioneer
Purchase Warrants they receive in the Distribution as
ordinary income. ELGT will send to ELGT shareholders IRS
Form 1099 DIV indicating the value of the Pioneer Common
Stock was $0.625 per share, with no value being designated
to the Pioneer Purchase Warrants. ELGT shareholders are
urged to read the more detailed discussion in this
Information Statement under the caption "Federal Income
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Tax Consequences of the Distribution." Each ELGT
shareholder is urged to consult his own tax advisor with
respect to the tax consequences of the Distribution.
Trading Market There is no current trading market for the Pioneer Common
for the Pioneer Stock or Pioneer Purchase Warrants. Admission of Pioneer
Common Stock and Common Stock and the Pioneer Purchase Warrants for
Warrants quotation on the OTC Bulletin Board is in effect a
condition to the Distribution. Trading in the Pioneer
Common Stock and Pioneer Purchase Warrants is expected to
commence on or about the Distribution Date.
Background of the ELGT formed Pioneer in July 1998 in anticipation of the
Transaction execution and closing of the Amended and Restated Asset
Exchange Agreement ("Exchange Agreement"), dated February
1999, among ELGT, Provident Pioneer Partners, L.P., a
Delaware limited partnership ("Provident"), and Pioneer.
At the closing provided in the Exchange Agreement, Pioneer
will issue: (1) to Provident, approximately 8 million
shares of Pioneer Common Stock and approximately 2,666,400
Pioneer Purchase Warrants in exchange for all of the
capital stock of Pioneer Transformers Ltd., a Canadian
corporation ("PTL"); and (2) to ELGT, approximately 2
million shares of Pioneer Common Stock and approximately
666,600 Pioneer Purchase Warrants in exchange for the
assignment and transfer to Pioneer of an amended $1.25
million Promissory Note of an affiliate of Provident
payable to a wholly owned subsidiary of ELGT.
As a condition to the closing of the Exchange Agreement,
ELGT agreed to effect the registration of the Pioneer
Common Stock and Pioneer Purchase Warrants under the
Securities Exchange Act of 1934, as amended, and to
distribute approximately 1.6 million of its shares of
Pioneer Common Stock and Pioneer Purchase Warrants to the
ELGT shareholders as the Distribution described in the
Information Statement. The expenses of the registration
are being borne by ELGT and Provident.
Business of Pioneer Prior to the Distribution and closing under the
Exchange Agreement, Pioneer will not conduct any business.
PTL manufactures, designs, sells and distributes liquid
filled electric power and distribution transformers, and
Pioneer will continue to conduct such business through PTL
after the Distribution Date and closing of the Exchange
Agreement.
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Principal On the Distribution Date, approximately 80% of the
Shareholders Of outstanding Pioneer Common Stock and Pioneer Purchase
Pioneer Warrants will be owned by Provident and approximately 4%
of the Pioneer Common Stock and Pioneer Purchase Warrants
will continue to be owned by ELGT.
Management Pioneer has entered into certain arrangements with
Of Pioneer Provident Canada Corp., the general partner of Provident,
to provide management, executive and administrative
services to Pioneer and its business. Pursuant to these
arrangements, Provident Canada Corp. will receive a
management fee for its services.
All of the executive officers and members of the Board of
Directors of Pioneer are employees of Provident or
affiliates of Provident. Nathan J. Mazurek, President and
CEO of Pioneer, will serve in such capacities and will
receive no additional cash compensation from Pioneer.
Risk Factors Pioneer's business and ownership of the Pioneer Common
Stock and the Pioneer Purchase Warrants is subject to
various risks, which are fully described in this
Information Statement. Such risks include: (1) dependence
on key personnel, (2) reliance on major customers, (3)
significant competition, (4) absence of established
trading market, and (5) market overhang of restricted
stock.
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FORWARD-LOOKING STATEMENTS
This Information Statement includes forward-looking statements within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). These statements are based on management's beliefs and
assumptions, and on information currently available to management.
Forward-looking statements include the information concerning possible or
assumed future results of operations of Pioneer set forth under the headings
"Business of Pioneer" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations." Forward-looking statements also include
statements throughout this Information Statement which use words such as
"expect," "anticipate," "intend," "plan," "believe," "estimate" or similar
expressions.
Forward-looking statements are not guarantees of future performance.
These statements include risks, uncertainties and assumptions, including the
risks discussed under "Risk Factors." Pioneer's future results and stock values
may differ materially from those expressed in or implied by these
forward-looking statements. Many of the factors that will determine these
results and values are beyond our ability to control or predict. You are
cautioned not to put undue reliance on any forward-looking statements. In
addition, Pioneer and ELGT do not have any intention or obligation to update any
forward-looking statements after this Information Statement is distributed, even
if new information, future events or other circumstances have made such
statements incorrect or misleading.
RISK FACTORS
In addition to the other information about the Distribution and Pioneer
provided in the balance of this Information Statement, this section highlights
specific risks relating to Pioneer and its business and risks associated with
the ownership of the Pioneer Common Stock and Pioneer Purchase Warrants.
Risks Relating to the Business of Pioneer
1. Dependence on Key Personnel. Pioneer will depend to a significant
extent upon the performance of key personnel, the loss of one or more of whom
could hurt Pioneer materially. Pioneer believes that its future success also
will depend in large part upon Pioneer's ability to attract and retain highly
skilled managerial, technical and sales and marketing personnel, who are in
demand. There can be no assurance that Pioneer will be successful in attracting
and retaining such personnel.
2. Major Customers. Two customers of Pioneer account for approximately
40% of Pioneer's gross revenues and one such customer accounts for approximately
30% of gross revenues. If Pioneer were to lose any one of these customers its
gross revenues would decline substantially and its business would be hurt
materially. See "Business of Pioneer--Customers."
3. Control of Pioneer. After the Distribution, Provident will own
approximately 80% of the outstanding shares of Pioneer Common Stock and Pioneer
Purchase Warrants. Accordingly, Provident will continue to be able to elect
Pioneer's directors and thereby control the management policies, as well as
determine the outcome of the corporate actions requiring shareholder approval by
majority action, regardless of how other Pioneer shareholders may vote. Pioneer
is managed by the general partner of Provident pursuant to certain arrangements,
including a fee payable for such services. The officers and directors of Pioneer
are also employees of Provident's affiliates.
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4. Competition. Pioneer experiences substantial competition in its
business from regional, national and international firms. Pioneer has numerous
competitors, many of which have substantially greater financial and technical
sources than Pioneer, and include some of the world's largest business
enterprises. Many competitors are larger and have far greater financial
resources than Pioneer. There is no assurance that Pioneer can compete
profitably with such other companies on a long-term basis. (See "Business of
Pioneer--Competition.")
5. Changes in Technology. Pioneer's business is dependent upon the
continued usage of standard electrical transformers. If significant changes in
technology occur, Pioneer's business might be hurt materially.
6. Future Acquisitions; Ability to Manage Growth. Pioneer's growth
strategy contemplates acquisitions of related products and businesses. Pioneer's
future success will be dependent, in part, upon its ability to identify, finance
and acquire suitable businesses on favorable terms and then to integrate and
manage the acquired businesses quickly and successfully. Acquisitions involve
special risks, including risks associated with unanticipated liabilities,
diversion of management attention, possible adverse effects on earnings
resulting from management attention, possible adverse effects on earnings
resulting from increased goodwill amortization, potential increased interest
costs, dependence on retention, hiring and training of key personnel and
difficulties relating to the integration of the acquired businesses. Although
Pioneer believes that it can successfully implement its acquisition strategy,
there can be no assurance that Pioneer will be able to identify or acquire
acceptable acquisition candidates on terms favorable to Pioneer and in a timely
manner to the extent necessary to fulfill this growth strategy. Pioneer's
ability to achieve and manage its growth will depend on a number of factors,
including the availability of working capital to support such growth, existing
and emerging competition and ability to maintain sufficient profit margins.
Continued growth could also place additional demands on administrative,
operational and financial resources. There can be no assurance that Pioneer will
be able to continue to achieve or manage growth effectively, or that future
acquisitions will not have an adverse effect upon business, operating results
and financial conditions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
Risks Associated With the Pioneer Common Stock and Warrants.
7. Dividend Policy. Pioneer does not anticipate the payment of cash
dividends in the foreseeable future, but intends to re-invest any profits, which
may be earned into Pioneer's business.
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8. Absence of Trading Market. There is currently no public trading market
for shares of Pioneer Common Stock or Pioneer Purchase Warrants. Although
Pioneer will seek to list the stock and warrants on the OTC Bulletin Board,
Pioneer cannot be sure the Pioneer stock or warrants will be actively traded.
Pioneer also cannot predict what the market price for the Pioneer Common Stock
and Pioneer Purchase Warrants might be. Until an orderly trading market
develops, the market price for the Pioneer stock and warrants may fluctuate
significantly. You should not view the current trading price of ELGT shares as a
reflection of what the trading price of the Pioneer Common Stock and Pioneer
Purchase Warrants will be.
In general, lenders will not make margin loans in respect of stock that
trades below $5 per share. Accordingly, if the Pioneer stock were to trade below
that level, a prospective purchaser of Pioneer Common Stock on margin might not
be able to borrow against the value of his Pioneer securities.
9. Market Overhang; Restricted Securities. Under the Exchange Agreement,
Provident may request Pioneer to register for resale all or some of the
approximately 8,000,000 shares of Pioneer Common Stock and approximately
2,666,400 Pioneer Purchase Warrants issued to Provident. In addition, pursuant
to the Exchange Agreement, Provident may demand that Pioneer prepare and file a
Registration Statement in connection with its Pioneer Common Stock and Pioneer
Purchase Warrants. It is anticipated that Provident will demand such
registration during 1999. Any resales of Pioneer Common Stock or Pioneer
Purchase Warrants by Provident (or the potential for those sales even if they do
not actually occur) could have the effect of depressing the trading price of the
Pioneer Common Stock and Pioneer Purchase Warrants and delay the development of
an orderly trading market in such securities. In addition, whether or not
Provident will make such registration demand for the Pioneer Common Stock and
Pioneer Purchase Warrants, the Pioneer stock and warrants held by Provident and
ELGT will be eligible for sale to the public on or about ______, 2000, pursuant
to the provisions of Rule 144 of the Rules and Regulations of the Securities and
Exchange Commission.
The Pioneer Common Stock and Pioneer Purchase Warrants would represent a
significant overhang on the market for such stock and warrants, if a market
develops. Such overhang on the market for the Pioneer stock and warrants could,
if a substantial number of the stock or warrants comprising such overhang were
sold in a short period of time (or the prospective sales even if they do not
actually occur), depress the then-current market price for the Pioneer Common
Stock and Pioneer Purchase Warrants. However, Pioneer cannot predict what effect
the market overhang will have.
In general, under Rule 144, a person who has beneficially owned his
restricted stock for at least one year, including persons who may be deemed
"affiliates" of Pioneer, would be entitled to sell within any three-month period
a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Pioneer Common Stock (approximately 100,000 shares based
on the current number of outstanding shares) or the average weekly trading
volume of Pioneer Common Stock during the four calendar weeks preceding such
sale.
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INFORMATION CONCERNING ELGT
General
Electric & Gas Technology, Inc. ("ELGT") was formed in 1985 under the laws
of the State of Texas and operates as a holding company for its operating
subsidiary corporations. ELGT owns Reynolds Equipment Company, Hydel
Enterprises, Inc. and Atmospheric and Magnetics Technology, Inc. ELGT, through
its subsidiaries, engages in three separate and distinct businesses. These
businesses include: the manufacture and sale of electrical switching devices,
electric heaters and metal enclosures for use in the electric utility; the
manufacture of natural gas measurement equipment and gas odorization products
and lines of related products of other manufacturers; the manufacture and sale
of atmospheric water, filtration and enhanced water products. Following the
Distribution, ELGT will own approximately 400,000 shares of Pioneer Common Stock
and approximately 133,320 Pioneer Purchase Warrants which will equal
approximately 4% of the total outstanding Pioneer stock and warrants.
Outstanding Securities
On _________, 1999, the record date of the Distribution (the "Record
Date"), ELGT had outstanding 8,198,224 shares of its $.001 par value Common
Stock. The Common Stock of ELGT is currently traded on the National Association
of Securities Dealers Automatic Quotation System ("NASDAQ") as a National Market
System security under the symbol "ELGT." As of the Record Date, ELGT had
_______record owners, and ELGT estimates that it had __________ beneficial
owners of its Common Stock.
BACKGROUND AND REASONS FOR DISTRIBUTION
In February 1999, ELGT, Provident and Pioneer entered into an Amended and
Restated Asset Exchange Agreement (the "Exchange Agreement") that provides for
the: (1) issuance of approximately 8,000,000 shares of Pioneer Common Stock and
approximately 2,666,400 Pioneer Purchase Warrants to Provident in exchange for
the capital stock of Pioneer Transformers Ltd., a Canadian corporation ("PTL");
and (2) the issuance of approximately 2,000,000 shares of Pioneer Common Stock
and approximately 666,660 Pioneer Purchase Warrants to ELGT in exchange for the
assignment and transfer to Pioneer of a certain amended $1,250,000 Promissory
Note, dated March 1999 (the "Note"), issued by American Circuit Breaker
Corporation, an affiliate of Provident and Pioneer, and payable to Retech, Inc.
(formerly Superior Technology, Inc.), a wholly owned ELGT subsidiary. The
Exchange Agreement was entered into among the parties in order to resolve
certain litigation concerning transactions underlying and related to the Note.
The Exchange Agreement provides, among other matters, that ELGT distribute
to its shareholders as a dividend, i.e., the Distribution, approximately
1,600,000 shares of the approximately 2,000,000 shares of the Pioneer Common
Stock and approximately 533,280
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warrants of the approximately 666,600 Pioneer Purchase Warrants, in each case,
received by ELGT under the Exchange Agreement. The Exchange Agreement also
provides for Pioneer to register its Common Stock with the Securities and
Exchange Commission ("SEC") under Section 12(g) of the Exchange Act and for ELGT
to distribute this Information Statement to its shareholders together with the
Distribution. The closing under the Exchange Agreement is subject to (among
other closing conditions) that Pioneer's registration of the Pioneer Common
Stock and Pioneer Purchase Warrants is made or deemed effective by the SEC. The
expenses of this registration will be borne by ELGT and Provident.
The Exchange Agreement also provides that, upon Provident's request,
Pioneer will register under the Securities Act of 1933, as amended, all or some
of the shares of Pioneer Common Stock and Pioneer Purchase Warrants received by
Provident under the Exchange Agreement, for resale to the public. Pioneer will
bear the expense of such registration.
FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION
Tax Consequences to ELGT Shareholders
The Distribution of Pioneer Common Stock and Pioneer Purchase Warrants to
the ELGT shareholders will be a taxable as a distribution subject to the
provisions of Section 301 of the Internal Revenue Code of 1986, as amended (the
"Code"). Holders of ELGT common stock will be treated as having received a
distribution taxable as ordinary income equal to the fair market value of the
Pioneer Common Stock and Pioneer Purchase Warrants received in the Distribution,
to the extent of ELGT's current and accumulated earnings and profits, computed
as of the close of the tax year during which the Distribution occurs. ELGT's tax
year ends on July 31.
In the absence of a trading market for the Pioneer Common Stock or Pioneer
Purchase Warrants, "fair market value" is to be calculated in accordance with
Internal Revenue Service Revenue Ruling 59-60, 1959--I C.B.237, which sets forth
certain valuation factors for such a determination (for example, the nature of
the business, its history, the general economic outlook, book value of Pioneer,
earnings capacity, dividend paying capacity, existence of good will and recent
sales of Pioneer shares). In connection with its approval of the Asset Exchange
Agreement and Distribution, ELGT's Board of Directors estimated the value of
each share of Pioneer Common Stock to be $0.625 per share. This valuation was
based principally on the $1,250,000 face amount of the amended Promissory Note
that ELGT will transfer and exchange for approximately 2,000,000 Pioneer shares
and approximately 666,600 warrants or $0.625 per share. The ELGT Board ascribed
no separate value to the Pioneer Purchase Warrants.
ELGT presently has current and accumulated earnings and profits in excess
of $0.625 per share. ELGT therefore intends to send to its shareholders and the
Internal Revenue Service an IRS Form 1099 DIV which will value the Distribution
at $0.625 per share. ELGT has not obtained, nor does it intend to obtain, an
advance ruling from the IRS as to the valuation of the Pioneer Common Stock and
Pioneer Purchase Warrants to be distributed as a dividend by ELGT to its
shareholders, and the IRS is not bound by the ELGT Board's determination of fair
market value. In the event the Internal Revenue Service determines the Pioneer
Common Stock and
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Pioneer Purchase Warrants to have a higher value, then the ELGT shareholders may
have to pay income tax on the Distribution based on such higher value.
Corporate holders of ELGT shares (other than S Corporations) may be
entitled to the dividends-received deduction, which would generally allow such
shareholders a deduction, subject to certain limitations, from their gross
income of either 70% or 80% of the amount of the dividend depending upon their
ownership percentage in ELGT.
A shareholder's tax basis in the Pioneer Common Stock and Pioneer Purchase
Warrants will be equal to its fair market value on the date of the Distribution.
The holding period for the ELGT shareholders for the Pioneer Common Stock
and Pioneer Purchase Warrants they receive in the Distribution will commence on
the date of the Distribution.
Tax Consequences to ELGT
ELGT will report the Distribution of the Pioneer Common Stock and Pioneer
Purchase Warrants as a distribution. ELGT will not recognize any taxable gain or
loss as a result of the Distribution.
The preceding discussion is a general summary of current Federal income
tax consequences of the Distribution as presently interpreted, and a
shareholder's particular tax consequences may vary depending on his individual
circumstances. Shareholders are encouraged to consult their own tax counsel
concerning the treatment of the Distribution on their income tax returns.
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BUSINESS OF PIONEER
ELGT formed Pioneer pursuant to the Exchange Agreement. Pioneer has not
engaged in any business activity other than its corporate organization. Upon
closing of the Exchange Agreement, Pioneer will acquire the capital stock of PTL
and, following such closing, the business of PTL will be Pioneer's business.
Industry Overview
PTL manufactures, designs, develops, sells and distributes liquid filled
electric power and distribution transformers. An electric transformer is used to
reduce or increase the voltage of electricity traveling through a wire. This is
accomplished by transferring electric energy from one coil or winding to another
coil through electromagnetic induction. Electric power plants use generator
transformers to "step-up," or increase, voltage that is transferred through
power lines in order to transmit the electricity more efficiently. When the high
voltage electricity reaches a community, a "step-down" transformer reduces its
voltage. A distribution transformer makes a final step-down in voltage by
diminishing the force of the electricity to a level usable in homes and
businesses. Some electrical devices, such as doorbells and small appliances, use
additional step-down transformers to decrease voltage even further.
A typical transformer has two windings, or coils or wire that are
insulated from each other. The two coils are wound on a common magnetic circuit
of laminated sheet metal, known as the core. Each end of the primary coil is
connected to the outgoing power line. The ratio between the number of windings
in each coil determines whether the voltage will be boosted or diminished.
Transformers may be either core or shell type. In core-type equipment, the
windings surround the laminated metal core; in shell-type transformers the metal
core surrounds the windings. Distribution transformers are usually core-type,
while more advanced high-voltage devices are often shell-type. In addition,
transformers are either single-phase or polyphase. Polyphase devices typically
have a three-legged core that can produce at least three different voltages.
Transformers are also classified according to the type of cooling system
they use; smaller transformers are usually cooled by air and larger equipment is
liquid-cooled. In addition, transformers may be installed as a stand-alone unit
or as part of an integrated power system, such as a utility substation.
The transformer manufacturing process typically consists of the following
major operations: (1) cutting of the core; (2) heat treatment of the cut core;
(3) winding of copper wire coil and the insertion of insulation; (4) assembly of
the core, coil and frame; (5) drying of the transformer assembly; (6) mounting
of the transformer assembly into the tank; and (7) filling the tank with oil and
sealing the tank.
Demand for electrical power and distribution transformers results
primarily from expansion and maintenance in the electric utility industry and
from investment in residential, commercial, and industrial construction. Other
market factors include voltage conversion,
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voltage unit upgrades, electrical equipment failures, higher energy costs and
stricter environmental regulations.
The constant-dollar value of shipments by the United States and Canadian
transformer industry has grown steadily over the last several years and results
from expansion of industrial and commercial construction activity. Utilities
have also been replacing old transformers with new and more efficient energy
models, which has also stimulated transformer production in recent years. Sales
of transformers were weaker in the residential construction segment as the more
energy conscious attitude of consumers has reduced the demand for distribution
transformers.
The total market for Pioneer's products in Canada and the United States is
estimated at approximately $1.5 billion. On a worldwide basis, the market is
estimated at approximately $6.3 billion . The transformer market is also very
fragmented due to the wide ranges of sizes, voltage standards, and technologies
required by end users. Electric utilities use a significant percentage of the
transformers produced in the United States and Canada for the construction and
maintenance of their power networks. Industrial firms use transformers to supply
factories with electricity and to distribute power to production machinery, and
the construction industry uses transformers to connect new homes and buildings
to the electricity grid.
Products
Pioneer is a leading manufacturer of electrical power and distribution
transformers in Canada. Pioneer designs, develops, manufacturers, sells and
distributes liquid-filled power and distribution transformers in electrical
power ranges from 10 KVA (kila-volt amperes) to 10 MVA (mega-volt amperes) (with
one MVA being equal to 1000 KVA), and up to 69 KV (kila-volts) in voltage.
Pioneer has focused on the small power market (generally considered to include
transformers between 2 and 10 MVA) and specialty transformers such as network or
highly engineered transformers. Pioneer sells its products to electrical
utilities, independent power providers, electrical co-ops, industrial companies,
electric wholesalers and commercial users.
Distribution transformers reduce high voltages transmitted on electrical
transmissions to usable levels (120 and 240 volts) for homes, offices and
factories. Distribution transformers may be mounted on a utility pole, placed at
ground level on a pad or in underground vaults. Power transformers are designed
for utility and industrial customers to be installed in substations or
commercial electric power centers for apartment complexes, shopping centers,
factories and other users of electrical power.
The electrical transformers manufactured by Pioneer consist of two basic
models: (1) polemounted distribution transformers which are attached to utility
poles for use in above-ground electrical distribution systems, and (2)
padmounted power or distribution transformers that are mounted on concrete pads
set on the ground for use in underground power or distribution systems. Pioneer
also manufactures "unit padmounts" which combine padmount transformers with
primary load break switches and secondary distribution equipment in a product
that can be substituted for conventional unit substations. In general, the
market for distribution transformers
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is shifting towards pad-mounted transformers, and away from pole mounted
transformers due to aesthetic reasons and since most new housing and small
commercial facilities are presently supplied by underground electrical systems.
The transformers manufactured by Pioneer are available as either single phase or
polyphase.
The transformers manufactured by Pioneer are typically core-type, composed
of stee1 cores surrounded by wire coils and mounted inside tanks made of hot
rolled steel that are filled with oil. The cores are manufactured from
non-aging, grain oriented silicon steel strip. Stresses which develop in cutting
and forming the core are relieved by batch annealing in nitrogen atmosphere
ovens. Coils are wound on heavy kraft board forms to provide high mechanical
strength and basic insulation to ground. Layer insulation consists of kraft
paper of several different thicknesses. Pioneer's core/coil/frame mounting
system is designed to assure a relatively stress free assembly resulting in
consistently low core loss and sound level.
Pioneer's padmount transformers are made in either live front or dead
front configurations, which means that the high voltage terminations are full
potential or completely encapsulated and grounded. A wide variety of switching,
fusing and surge options are offered for Pioneer's padmount transformers.
In addition to electrical transformers, Pioneer designs, manufactures and
sells a relatively small amount of switchgear, including enclosed switches and
panel boards. Pioneer is actively seeking to expand its product line by the
development and/or with highly engineered ancillary or complementary products.
Customers
Pioneer sells its products principally to Canadian customers, which
presently account for in excess of 80% percent of Pioneer's sales. Pioneer's
customers include the majority of the Canadian electrical utilities, and a
substantial number of electrical wholesalers as well as a number of large
industrial companies. During the past five years, approximately 60% of Pioneer's
sales have been to utilities, approximately 15% to electrical wholesalers and
approximately 15% to industrial companies. Approximately 18% and 30% of
Pioneer's sales in 1997 and 1998, respectively, were made to Hydro-Quebec
Utility Company, a government-owned utility in the Province of Quebec, Canada
("Hydro-Quebec"). Pioneer's sales to Hydro-Quebec are made pursuant to a
purchase order which expires on December 31, 2000. Hydro-Quebec has been a
customer of Pioneer and its predecessors for approximately 30 years. Another
Canadian utility accounted for approximately 9% of sales in 1998.
In 1996, approximately 2% of Pioneer's total sales were made in the United
States, however, in 1998, U.S. sales rose to approximately 15%. Pioneer intends
to continue to emphasize U.S. based customers, particularly utilities purchasing
network and subsurface electrical transformers. In addition, a small portion of
Pioneer's products are presently sold in markets other than U.S. and Canada.
Pioneer intends to generally emphasize sales to utility customers that
purchase network and subsurface transformers. Pioneer also intends to adopt a
growth strategy which contemplates
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the acquisition of related businesses and products. See "Risk Factors--Future
Acquisitions."
Competition
Pioneer experiences substantial competition in its business. Pioneer has
numerous competitors, many of which have substantially greater financial and
technical resources than Pioneer, and include some of the world's largest
business enterprises. Pioneer competes with several Canada-based and U.S.
manufacturers of electrical transformers. Pioneer's principal competitors
include the following: Asea Brown Boveri, General Electric, Carte Industries,
Moloney Electric, Howard Industries, Cooper Industries and Partners Technology.
Pioneer believes that it competes primarily on the basis of product
quality, product innovation, service and price. Pioneer has been manufacturing
power and distribution transformers in the Canadian market for approximately 40
years. As a result of its long-time presence in the industry, Pioneer possesses
a number of special transformer designs that it has engineered and developed
specifically for its customers. Pioneer has established a niche in the
manufacture and design of small power and distribution electrical transformers
and, in particular, custom transformers requiring specialized and complex
applications.
Raw Materials
The primary raw materials purchased by Pioneer are core steel, copper
wire, aluminum strip and oil. Pioneer also purchases bushings, switches, fuses
and protectors. These raw materials purchased by Pioneer are generally available
from numerous sources at competitive prices. Pioneer anticipates no significant
difficulty filling its raw material requirements.
Marketing and Sales
A significant portion of the transformers manufactured by Pioneer are
marketed directly by three employees based in its Toronto, Ontario, Canada sales
office and two employees of an affiliate based in the Charlotte, North Carolina,
U.S.A. sales office. Pioneer's products are also sold through approximately 30
independent sales representative organizations.
Facilities
Pioneer has one manufacturing facility located in Granby, Quebec, Canada ,
which was built in 1962 and consists of approximately 38,000 square feet. The
facility sits on approximately 25 acres in the town of Granby which is located
approximately 40 miles east of Montreal. Pioneer owns both the facility and land
through its wholly owned subsidiary, Bernard Granby Realty, Inc. In the opinion
of Pioneer, the Granby facility has been well maintained and is in proper
condition necessary to operate at current levels. Pioneer also maintains sales
offices in Toronto, Ontario, Canada and Charlotte, North Carolina, U.S.A.
Employees
At April 1, 1999, Pioneer employed 38 hourly employees in Granby who are
covered by
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a collective bargaining agreement with the United Steel Workers of America Local
5653 expiring in May 2000. At such date, Pioneer had 12 salaried employees,
consisting of six engineers, a purchasing manager, three sales personnel, the
Granby plant manager and a general manager. Pioneer considers relations with its
employees to be very satisfactory.
Environmental
Pioneer is subject to numerous environmental laws and regulations
concerning, among others, air emissions, discharges into waterways and the
generation, handling, storing, transportation, treatment and disposal of waste
materials. These laws and regulations are constantly changing and it is
impossible to predict with accuracy the effect they may have on Pioneer in the
future. Like many other industrial concerns, Pioneer's manufacturing operations
entail the risk of noncompliance, which may result in fines, penalties and
remediation costs, and there can be no assurance that such costs will be
insignificant. To the knowledge of Pioneer, it is in substantial compliance with
all Federal, state, provincial and local environmental protection provisions,
and believes that future fines, penalties and remediation protection provisions,
and believes that future fines, penalties and remediation costs associated with
environmental noncompliance, if any, should not have a material adverse effect
on capital expenditures, earnings or Pioneer's competitive position. However,
legal and regulatory requirements in these areas have been increasing, and there
can be no assurance that significant costs and liabilities will not be incurred
in the future due to regulatory noncompliance.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Pioneer operates in one industry segment in which it manufactures,
designs, develops, sells and distributes liquid filled power and distribution
electric transformers for the utility, industrial and commercial markets. Upon
closing of the Exchange Agreement, Pioneer will acquire the capital stock of PTL
and, following such closing, the business of PTL will be Pioneer's business.
Revenues for Pioneer increased 24% to $14.6 million in 1998 from $11.8
million in 1997. Income from operations increased $826,000 in 1998 to $1.1
million compared to $264,000 for the same period in 1997. Net income for 1998
was $723,000 and compared to $24 ,000 in 1997.
Key elements of the consolidated statements of operations, expressed as a
percentage of revenues, were as follows: (1) gross profit margin was 16.4% for
1998 compared to 13.8% for 1997; (2) selling, general and administrative expense
was 8.9% for 1998 compared to 11.5% for 1997; and (3) income from operations was
7.5% for 1998 compared to 2.2% for 1997.
While management believes that the discussion and analysis in this report
is adequate for a fair presentation of the information, it is recommended that
this discussion and analysis be read in conjunction with the entire Information
Statement and attached Financial Statements.
Results of Operations
Revenue. Total revenues increased to $14.6 million in 1998 from $11.8
million in 1997. The increase in revenues during 1998 primarily reflects an
increase in demand for Pioneer's products in the Canadian utility market, as
well as a greater penetration into both the United States and Canadian
industrial markets. Sales to the utility market accounted for approximately 85%
of the revenue in 1998 while industrial sales accounted for approximately 15%.
Gross Margin. The gross margin percentage for 1998 increased to 16.4 % of
revenues compared with 13.8% in 1997. The increase was primarily related to the
change in product mix associated with the sale of larger units into the utility
market as well as more efficient manufacturing resulting from a plant expansion
in 1997.
Pioneer's operating environment combined with resources required to
operate in the electrical transformer industry requires a variety of factors
such as product mix, factory capacity and utilization, and prices for various
raw material commodities. Accordingly, there can be no assurance that such or
other factors will not have a material effect on Pioneer's gross margin in
future periods.
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Selling, General and Administrative. Selling, general and administrative
(SG&A) expenses in 1998 decreased to $1.3 million compared to $1.35 million for
1997. This was the result of a reduction in personnel costs of approximately
$125,000 which was partially offset by additional sales costs associated with
the higher sales volume. SG&A expenses as a percentage of revenue decreased to
8.9% in 1998 from 11.5% in 1997.
Financial Expense. Financial expense increased to $367,000 in 1998
compared to $277,000 in 1997. The loan agreements with Pioneer's primary lender
includes a fee based on total collections of accounts receivable. The increase
is due primarily to increased collection fees associated with higher sales
volume as well as increases in the revolving line of credit to finance higher
inventory and accounts receivable levels.
Provision of Income Taxes. Pioneer has accumulated losses for Canadian and
provincial income tax purposes which may be carried forward and used to reduce
taxable income in future years, the tax benefits of which will be recognized
when they are used. This accumulated loss was $32,000 in the aggregate as of
December 31, 1998.
Restructuring. Pioneer implemented a restructuring plan in the third
quarter of 1996 and made a charge to other income and expense in the amount of
$277,000 to close down a manufacturing facility in Regina, Saskatchewan, Canada,
and to relocate all continuing manufacturing to the main facility in Granby,
Quebec, Canada. By the end of 1998, all reserves established under the
restructuring plan had been utilized. Pioneer does not believe any additional
costs will be incurred.
Factors That May Effect Future Operations
Pioneer believes that its future operating results will continue to be
subject to quarterly variations based upon a wide variety of factors, including
the cyclical nature of the transformer industry and the markets addressed by
Pioneer's products. Pioneer's operating results could also be impacted by a
further weakening of the Canadian dollar, customer requirements, and other
economic conditions affecting customer demand. Pioneer predominately sells to
customers in the utility market. Accordingly, changes in the conditions of any
of Pioneer's customers may have a greater impact than if it sold to different
types of customers.
Year 2000 Disclosure
Pioneer uses a significant number of computer software programs and
operating in its internal operations, including applications used in its
financial, product development, order management and manufacturing systems. The
inability of computer software programs to accurately recognize, interpret and
process date codes designating the Year 2000 and beyond may cause systems to
yield inaccurate results or encounter operating problems including interruption
of the business operations such systems control. Based on information currently
available, Pioneer believes that its internal systems currently are, or by such
time as is necessary to avoid a material adverse effect upon Pioneer, will be,
capable of functioning without Year 2000 problems. Also based on information
thus far available, Pioneer does not believe it will
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incur expenditures in dealing with Year 2000 issues that will have a material
adverse effect on the financial condition of Pioneer.
Pioneer may also be exposed to risks from computer systems of other
parties with which Pioneer transacts business. If problems were to develop with
the systems of such other parties, these problems could have a material adverse
effect on Pioneer. Accordingly, Pioneer is taking steps, including contacting
its strategic suppliers and large customers, in order to determine the extent to
which Pioneer may be vulnerable to such other parties' failure to remedy their
own Year 2000 issues and to ascertain what actions, if any, should to be taken
by Pioneer in response to such risks.
Pioneer has expended, and will continue to expend, appropriate resources
to address this issue on a timely basis.
Financial Condition and Liquidity
Current assets increased $571,000 during the 12 months ended December 31,
1998 while current liabilities decreased $96,000 during the same period. This
resulted in an increase in working capital of $667,000 for such fiscal year.
Pioneer also reduced long term debt (including capitalized leases) by $282,000
during the same period.
Pioneer has a revolving credit line with its primary lender of
approximately $1,800,000 bearing interest at prime plus 2%, as well as a fixed
loan arrangement with such lender . As of December 31, 1998 and 1997, the
revolving credit line was $1,004,593 and $1,533,388,respectively, and is shown
on the Financial Statements annexed to this Information Statement as a reduction
of accounts receivable.
In February 1995, Pioneer entered into an agreement whereby all of the
account receivables are sold to such lender. To the extent that Pioneer draws
funds prior to the collection of the account receivables, it pays interest at
the rate of 2% above the prime rate. Pioneer is contingently liable for credit
risk, merchandise disputes and other claims relating to the accounts receivable
sold to the lender.
The fixed loan of Pioneer consists of the $290,773 outstanding at December
31, 1998 ,of which $232,000 is current and $58,155 is long term. This compares
to $561,028 outstanding at December 31, 1997, of which $249,346 was current and
$311,682 was long term.
The fixed loan was payable in monthly payments of $19,385 in 1998 and
$20,779 in 1997, plus interest at prime plus 2.5% and matures in March 2000.
Annual maturities were $232,618 in 1998 and $58,155 in 1999. Interest paid by
Pioneer during 1998 in respect of these loans amounted to approximately $37,800
in the aggregate.
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MANAGEMENT OF PIONEER
The following table sets forth the officers and directors of Pioneer as of
the date of this Information Statement and giving effect to the Closing of the
Exchange Agreement. Such persons held similar positions with PTL.
Name Age Position
- --------------------------------------------------------------------------------
Nathan J. Mazurek 37 President, Chief Executive
Officer and Director
David J. Landes 42 Executive Vice President
and Director
Nelson A. Park 50 Chief Financial Officer,
Secretary/Treasurer and
Director
All current officers and directors serve until the next annual meeting of
shareholders or until their respective successors are elected and qualified. All
officers serve at the discretion of the Board of Directors. No family
relationships exist between or among any of Pioneer's officers or directors.
None of these officers receive compensation from Pioneer. Each of these
officers and directors are employees of affiliates of Provident.
Certain information regarding the background of the officers and directors
of Pioneer is set forth below:
Nathan J. Mazurek. Mr. Mazurek has been the CEO and President of PTL since
its inception in February 1995. Mr. Mazurek is also presently acting as PTL's
marketing and sales manager. In addition, since 1988, Mr. Mazurek has been
President and CEO of American Circuit Breaker Corporation, an affiliated
manufacturer of circuit protection equipment. Mr. Mazurek has a JD degree from
Georgetown University Law School.
David J. Landes. Mr. Landes has been Executive Vice President of PTL since
its inception, and has focused on PTL's financing activities and strategic
planning. Mr. Landes is also President of Provident Sunnyside, L.L.C., an
affiliated diversified real estate holding company. Provident Sunnyside owns,
controls and invests in a variety of real estate related enterprises. Mr. Landes
has a J.D. Degree from University of Chicago Law School.
Nelson A. Park. Mr. Park has been Chief Financial Officer of PTL since its
inception. Areas under Mr. Park's control include cost accounting, financial
reporting, receivable collection, disbursements, pension administration and
accounts payable. Mr. Park has also been Chief Financial Officer of American
Circuit Breaker Corporation since 1988. Mr. Park is a graduate of the University
of West Virginia.
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Executive Compensation
None of Pioneer's executive officers will receive a salary or any direct
compensation. Pioneer has, however, entered into certain management arrangements
with Provident Canada Corp., Provident's general partner. Pursuant to these
management arrangements, Provident Canada Corp. provides management, executive
and administrative services to Pioneer for annual compensation of approximately
$70,000. The compensation of Pioneer's executive officers will be reviewed from
time to time by its Board of Directors based upon criteria determined by the
Board relating to Pioneer's growth and performance.
1999 Stock Option Plan
The Pioneer Board of Directors (the "Board") has approved the Pioneer
Power, Inc. 1999 Stock Option Plan (the "Plan") in order to enhance the
profitability and value of Pioneer for the benefit of its stockholders by
enabling it to offer employees and consultants of Pioneer and certain affiliates
and nonemployee directors of Pioneer stock-based incentives, thereby creating a
means to raise the level of stock ownership by such individuals, to attract,
retain and reward such individuals and to strengthen the mutuality of interests
between them and Pioneer's stockholders. The Plan has also been approved by
ELGT, as the sole stockholder of Pioneer.
The Plan will be administered and interpreted by the Board or a committee
or subcommittee of the Board appointed from time to time (the "Committee"). The
Board or Committee will have the full authority to administer and interpret the
Plan and to make all other determinations in connection with the Plan and the
stock options thereunder as the Board or Committee, in its sole discretion,
deems necessary or desirable. Stock options under the Plan may not be made on or
after the tenth anniversary of the adoption of the Plan.
All employees and consultants of Pioneer and certain affiliates and
nonemployee directors of Pioneer are eligible to be granted nonqualified stock
options. In addition, employees of Pioneer, its subsidiary corporations and its
parent corporations (if any) are eligible to be granted incentive stock options
("ISOs") under the Plan. Eligibility under the Plan is determined by the Board
or Committee in its sole discretion.
The aggregate number of shares of Pioneer's Common Stock which may be
issued or used for reference purposes under the Plan or with respect to which
stock options may be granted may not exceed 20% of the number of shares of
Pioneer's Common Stock issued and outstanding (assuming full dilution of all
awards, options and equity convertible into Common Stock), determined as of
Pioneer's most recent fiscal quarter immediately preceding the grant of options,
except that with respect to ISOs, stock option grants may not exceed 2,000,000
shares of Pioneer's Common Stock. The maximum number of shares of Common Stock
with respect to which any option which may be granted under the Plan during any
fiscal year to any individual is 500,000 shares of Common Stock, except that
nonemployee directors may not receive an option for more than 5,000 shares in
any fiscal year. The number of shares of Common Stock available for the grant of
options and the exercise price of an option may be adjusted to reflect any
change in Pioneer's capital structure or business by reason of certain corporate
transactions or events.
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The Board or Committee may grant nonqualified stock options and ISOs to
purchase shares of Pioneer's Common Stock. The Board or Committee will determine
the number of shares of Common Stock subject to each option, the term of each
option (which may not exceed 10 years), the exercise price, the vesting schedule
(if any) and the other material terms of each option. No option may have an
exercise price less than the fair market value of share of Common Stock at the
time of grant (or, in the case of an ISO granted to a 10% stockholder, 110% of
fair market value).
Options will be exercisable at such time or times and subject to such
terms and conditions as determined by the Board or Committee at the time of
grant. Payment of the purchase price may be made in such form, or such other
arrangement for the satisfaction of the purchase price, as the Board or
Committee may accept.
Stock options granted under the Plan are generally nontransferable,
although the Board or Committee may decide that a nonqualified stock option is
transferable in certain limited circumstances. The Plan is not subject to any of
the requirements of the Employee Retirement Income Security Act of 1974, as
amended. The Plan is not, nor is it intended to be, qualified under Section
401(a) of the Internal Revenue Code.
Option grants have been made to the directors and officers and one key
employee of Pioneer under the Plan in order to permit them to purchase 1,000,000
shares of Pioneer's Common Stock in the aggregate, with options for 500,000
shares of Common Stock being granted to Pioneer's President and Chief Executive
Officer. The exercise price for such options has been set at the average of the
closing bid and asked quotations for the Pioneer Common Stock for the first 20
days following the commencement of trading thereof. These options will vest in
equal annual installments over a four-year period beginning on the date of grant
which will be on or about the Distribution Date.
Since future stock options under the Plan will be based upon prospective
factors including the nature of services to be rendered by prospective employees
of Pioneer and their potential contributions to the success of Pioneer, actual
options under the Plan cannot be determined at this time.
Indemnification of Directors and Officers
Pioneer is currently seeking officer and director liability insurance,
although none has been obtained as of the date of this Information Statement.
As permitted by Delaware law, Pioneer's Bylaws provide that Pioneer will
indemnify its directors and officers against expenses and liabilities they incur
to defend, settle or satisfy any civil lawsuit including any action alleging
negligence, or criminal action brought against them on account of their being or
having been Pioneer directors or officers unless, in any such action, they are
judged to have acted with gross negligence or willful misconduct. Insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended, may be permitted to directors, officers or persons controlling Pioneer
pursuant to the foregoing provisions, Pioneer has been informed that, in the
opinion of the SEC, such indemnification
24
<PAGE>
is against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
RELATED TRANSACTIONS
Certain partners and affiliates of Provident have advanced loans to PTL in
the aggregate amount of approximately $500,000, including $250,000.00 advanced
by American Circuit Breaker Corporation ("ACBC"), an affiliate of Pioneer and
Provident. These advances typically have a maturity date of five years after the
loan is made with interest thereon at the rate of 12% per annum paid or accrued.
None of Pioneer's executive officers will receive a salary or any direct
compensation. Pioneer has, however, entered into certain management arrangements
with Provident Canada Corp., the general partner of Provident. These
arrangements provide for the furnishing of certain management, executive and
administrative services to Pioneer and for annual compensation paid to such
affiliate in the aggregate amount of approximately $70,000.
In addition, since January, 1999, Pioneer has paid ACBC the sum of $10,000
per month for certain financing, marketing and sales, consulting and
administration services, including reimbursement for compensation relating to
two marketing employees provided to Pioneer. Pioneer also operates a sales
office in Charlotte, North Carolina and occupies certain space leased by an
affiliate on a rent free basis, and reimburses ACBC for the compensation paid to
two marketing employees utilized by Pioneer on a full time basis.
PRINCIPAL SHAREHOLDERS OF PIONEER
On the date of this Information Statement, there were 10,000,000 shares of
Pioneer Common Stock issued and outstanding. Each holder of Common Stock is
entitled to one vote per share on each matter, which may be presented at a
shareholders' meeting.
The following table sets forth certain information regarding the
beneficial ownership of Pioneer Common Stock pro-forma as of the date of this
Information Statement, and after giving effect to the Closing under the Exchange
Agreement and the issuance of approximately 8,000,000 shares of Pioneer Common
Stock to Provident and approximately 2,000,000 shares to ELGT of Pioneer Common
Stock, and the subsequent Distribution of approximately 1,600,000 of such shares
of Pioneer Common Stock to the ELGT shareholders, in respect of (1) persons
known to Pioneer to be beneficial owners of more than 5% of the Common Stock of
Pioneer, (2) each of Pioneer's officers and directors and (3) the officers and
directors of Pioneer as a group.
25
<PAGE>
Name and Address Shares Owned Percentage
of Beneficial Owner Beneficially Owned
Provident Pioneer Partners, L.P. (1)(2) 8,000,000 80%
A Delaware limited partnership
122 East 42nd Street, Suite 1115
New York, New York 10168
All officers and directors -0- -0-
as a group (3 persons)
(1) Provident Canada Corp, a Delaware corporation, is the general partner of
Provident Pioneer Partners, L.P. Nathan J. Mazurek is the President and
the principal stockholder of this corporation.
(2) Provident Pioneer Partners, L.P. also owns approximately 2,666,400 Pioneer
Purchase Warrants that may be exercised (converted) into approximately
2,666,400 shares of Pioneer Common Stock at an initial exercise price of
$4.00 per share.
DESCRIPTION OF SECURITIES OF PIONEER
Authorized Capital Stock
The authorized capital stock of Pioneer consists of 30,000,000 shares of
Common Stock, $0.0l par value per share, and 5,000,000 shares of Preferred
Stock, $1.00 par value per share. As of the date of this Information Statement
and giving effect to the Closing of the Exchange Agreement, there were
10,000,000 shares of Common Stock outstanding and no shares of Preferred Stock
outstanding.
Description of Common Stock
Each share of Common Stock is entitled to one (1) vote at all meetings of
shareholders. All shares of Common Stock are equal to each other with respect to
liquidation rights and dividend rights. There are no preemptive rights to
purchase any additional shares of Common Stock. The Certificate of Incorporation
of Pioneer prohibits cumulative voting in the election of directors. The absence
of cumulative voting means that holders of more than 50% of the shares voting
for the election of directors can elect all directors if they choose to do so.
In such event, the holders of the remaining shares of Common Stock will not be
entitled to elect any director. A majority of the shares entitled to vote,
represented in person or by proxy, constitutes a quorum at a meeting of
shareholders. In the event of liquidation, dissolution or winding up of Pioneer,
holders of shares of Common Stock will be entitled to receive, on a pro rata
basis, all assets of Pioneer remaining after satisfaction of all liabilities.
26
<PAGE>
Description of Preferred Stock
Pioneer has not issued any shares of Preferred Stock, and does not intend
to do so in the foreseeable future. Nevertheless, the Board of Directors of
Pioneer has the right to designate the rights, preferences and classifications
of shares of Preferred Stock and could, without further action by the holders of
Pioneer Common Stock, issue shares of Preferred Stock with voting and conversion
rights which could affect adversely the voting power and rights of the holders
of Common Stock. It is possible that the issuance of Preferred Stock, if ever
done, could occur in such a manner as to impede a change in control of Pioneer
Pioneer Purchase Warrants
Each of the Pioneer Purchase Warrants (the "Warrants") entitles the
registered holder to purchase one share of Common Stock at an initial exercise
price of $4.00 commencing one year from the date of this Information Statement
through ___________________, 2005 (the "Expiration Date"), provided that at such
time a registration statement under the Securities Act of 1933, as amended,
relating to the Common Stock is in effect and the Common Stock is qualified for
sale or exempt from qualification under applicable state securities law.
The Warrants will be issued pursuant to a warrant agreement (the "Warrant
Agreement") between Pioneer and American Stock Transfer & Trust Company as
warrant agent (the "Warrant Agent"), and will be evidenced by warrant
certificates in registered form. The exercise price of the Warrants has been
determined by negotiation between ELGT and Provident and should not be construed
to predict, or to imply that, any price increases will occur in Pioneer's
securities. The exercise price of the Warrants and the number and kind of shares
of Common Stock or other securities and property to be obtained upon exercise of
the Warrants, are subject to adjustment in certain circumstances including a
stock split, stock dividend, a subdivision, combination or capitalization of the
Common Stock or the issuance of shares of Common Stock or securities convertible
into shares of Common Stock at less than the market price of the Common Stock.
Adjustments will be made upon the sale of all or substantially all of the assets
of Pioneer for less than market value, a merger or other unusual events so as to
enable Warrantholders to purchase the kind and number of shares of Common Stock
that might otherwise have been purchased upon exercise of such Warrant. No
adjustment for previously paid cash dividends, if any, will be made upon
exercise of the Warrants. Pioneer is not required to issue fractional shares of
Common Stock, and in lieu thereof will make a cash payment based upon the
current market value of such fractional shares.
The Warrants may be exercised upon surrender of the certificate
representing such Warrants on or prior to the expiration date (or earlier
redemption date) of such Warrants at the offices of the Warrant Agent. The form
of "Election of Purchase" on the reverse side of the Warrant certificate must be
completed and executed as indicated, accompanied by payment of the full exercise
price (by certified or bank check payable to the order of Pioneer) for the
number of Warrants being exercised. Shares of Common Stock issued upon exercise
of Warrants, for which payment has been received in accordance with the terms of
the Warrants, will be fully paid and non-assessable. The Warrants do not confer
upon the Warrantholder any voting or other rights of a stockholder of Pioneer.
Pioneer and the Warrant Agent may modify the warrants as
27
<PAGE>
they deem necessary or desirable, provided that any such modification does not
adversely affect the rights of Warrantholders.
Reports to Shareholders
Pioneer will provide annual reports to shareholders containing audited
financial statements and will provide additional interim reports as determined
by management.
Transfer and Warrant Agent
Pioneer has retained American Stock Transfer & Trust Company, New York,
New York, as the Transfer Agent for the Pioneer Common Stock and as the
Warrant Agent for the Pioneer Purchase Warrants.
LEGAL MATTERS
The law firm of Shiboleth, Yisraeli, Roberts & Zisman, L.L.P., New York,
New York, acted as legal counsel for Pioneer and Provident in connection with
the Registration Statement of which this Information Statement forms a part and
related matters.
Carl A. Generes, Esq., Dallas, Texas represented ELGT in connection with
the preparation of the Information Statement and related matters.
EXPERTS
The financial statements of Pioneer Transformers Ltd. included in this
Information Statement and Registration Statement have been audited by KPMG
Chartered Accountants, independent auditor, and by Edward Isaacs & Company LLP
for the periods indicated in their respective reports thereon which appear
elsewhere herein and in the Registration Statement. The financial statements and
schedules audited by KPMG Chartered Accountants and by Edward Isaacs & Company
LLP have been included and are relied upon as a result of their expertise in
accounting and auditing.
28
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of Independent Certified Public Accountants 1
Report of Independent Certified Public Accountants (KPMG) --
PIONEER POWER, INC. AND SUBSIDIARIES
Consolidated Balance Sheet 3
Consolidated Statement of Income and Accumulated Deficit 4
Consolidated Statement of Comprehensive Income 5
Consolidated Statement of Cash Flows 6
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
Consolidated Balance Sheets 7
Consolidated Statements of Income and Accumulated Deficit 8
Consolidated Statements of Comprehensive Income 9
Consolidated Statements of Cash Flows 10
Notes to Consolidated Financial Statements 11
29
<PAGE>
[LETTERHEAD OF EDWARD ISAACS & COMPANY LLP]
[LOGO]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
Pioneer Power, Inc.
We have audited the accompanying consolidated balance sheets of Pioneer Power,
Inc. and subsidiaries, and Pioneer Transformers Ltd. and subsidiaries
(predecessor) as of December 31, 1998, and the related consolidated statements
of income and accumulated deficit, comprehensive income, and cash flows for the
period July 28, 1998 (inception) to December 31, 1998 (Pioneer Power) and for
the year then ended (Pioneer Transformers). These consolidated financial
statements are the responsibility of the companies' management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Pioneer Power,
Inc. and subsidiaries, and Pioneer Transformers Ltd. and subsidiaries
(predecessor) as of December 31, 1998, and the consolidated results of their
operations and cash flows for the period July 28, 1998 (inception) to December
31, 1998 (Pioneer Power) and for the year then ended (Pioneer Transformers), in
conformity with generally accepted accounting principles.
/s/EDWARD ISAACS & COMPANY LLP
January 25, 1999
- 1 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Pro forma
ASSETS Historical Adjustments Pro forma
----------- ----------- -----------
<S> <C> <C> <C>
(Note 1) (Unaudited)
CURRENT ASSETS:
Cash $ 100 $ (100)
Due from bank - factoring -- 848,694 $ 848,694
Other receivables -- 3,496 3,496
Inventories -- 1,426,373 1,426,373
Prepaid expenses -- 6,544 6,544
----------- ----------- -----------
TOTAL CURRENT ASSETS 100 2,285,007 2,285,107
PROPERTY, PLANT AND EQUIPMENT -- 585,460 585,460
OTHER ASSETS -- 249,271 249,271
----------- ----------- -----------
$ 100 $ 3,119,738 $ 3,119,838
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 60,125 $ 1,737,865 $ 1,797,990
Current portion of long-term debt -- 232,618 232,618
Current portion of obligations under capital leases -- 25,828 25,828
----------- ----------- -----------
TOTAL CURRENT LIABILITIES 60,125 1,996,311 2,056,436
----------- ----------- -----------
LONG-TERM LIABILITIES:
Long-term debt -- 58,155 58,155
Obligations under capital leases -- 8,548 8,548
Accrued pension liability -- 143,288 143,288
Advances from related parties 35,000 428,014 463,014
----------- ----------- -----------
TOTAL LONG-TERM LIABILITIES 35,000 638,005 673,005
----------- ----------- -----------
TOTAL LIABILITIES 95,125 2,634,316 2,729,441
----------- ----------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY):
Capital stock 100 99,900 100,000
Additional paid-in capital -- 1,639,827 1,639,827
Accumulated deficit (95,125) (71,703) (166,828)
Note receivable -- (1,250,000) (1,250,000)
Accumulated other comprehensive income:
Foreign currency translation adjustments -- 67,398 67,398
----------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) (95,025) 485,422 390,397
----------- ----------- -----------
$ 100 $ 3,119,738 $ 3,119,838
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE PERIOD DATE (INCEPTION) TO DECEMBER 31, 1998
(HISTORICAL) AND THE YEAR ENDED DECEMBER 31, 1998 (PRO FORMA)
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments Pro forma
------------ ------------ ------------
<S> <C> <C> <C>
(Note 1) (Unaudited)
REVENUES $ 14,584,721 $ 14,584,721
COST OF GOODS SOLD
(including depreciation of $181,324) 12,193,513 12,193,513
------------ ------------
GROSS PROFIT 2,391,208 2,391,208
------------ ------------
EXPENSES:
Administration $ 95,125 668,810 763,935
Sales and engineering -- 551,954 551,954
Amortization -- 56,235 56,235
Depreciation -- 24,477 24,477
------------ ------------ ------------
95,125 1,301,476 1,396,601
------------ ------------ ------------
OPERATING (LOSS) INCOME (95,125) 1,089,732 994,607
INTEREST EXPENSE -- 367,187 367,187
------------ ------------ ------------
NET (LOSS) INCOME (95,125) 722,545 627,420
ACCUMULATED DEFICIT at beginning -- (794,248) (794,248)
------------ ------------ ------------
ACCUMULATED DEFICIT at end $ (95,125) $ (71,703) $ (166,828)
============ ============ ============
Net (loss) income per share $ (9,512.50) $ -- $ 0.06
============ ============ ============
Number of shares used in per share calculation 10 -- 10,000,000
============ ============ ============
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE PERIOD DATE (INCEPTION) TO DECEMBER 31, 1998
(HISTORICAL) AND THE YEAR ENDED DECEMBER 31, 1998 (PRO FORMA)
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments Pro forma
---------- ----------- ---------
<S> <C> <C> <C>
(Note 1) (Unaudited)
NET (LOSS) INCOME $(95,125) $722,545 $627,420
OTHER COMPREHENSIVE INCOME:
Foreign currency translation -- 27,172 27,172
-------- -------- --------
COMPREHENSIVE (LOSS) INCOME $(95,125) $749,717 $654,592
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD DATE (INCEPTION) TO DECEMBER 31, 1998
(HISTORICAL) AND THE YEAR ENDED DECEMBER 31, 1998 (PRO FORMA)
<TABLE>
<CAPTION>
Pro forma
Historical Adjustments Pro forma
---------- ----------- ---------
<S> <C> <C> <C>
(Note 1) (Unaudited)
OPERATING ACTIVITIES:
Net (loss) income $(95,125) $ 722,545 $ 627,420
Adjustment to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Amortization -- 262,036 262,036
-------- --------- ---------
(95,125) 984,581 889,456
-------- --------- ---------
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Due from bank - factoring -- (360,272) (360,272)
Inventories -- (189,060) (189,060)
Prepaid expense -- 908 908
Other receivables -- (66) (66)
Accounts payable and accrued liabilities 95,125 (62,062) 33,063
-------- --------- ---------
95,125 (610,552) (515,427)
-------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES -- 374,029 374,029
-------- --------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment -- (49,441) (49,441)
Loans receivable from affiliated companies -- (23,711) (23,711)
Proceeds on disposal of other assets -- 9,033 9,033
-------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES -- (64,119) (64,119)
-------- --------- ---------
FINANCING ACTIVITIES:
Repayment of long-term debt -- (240,429) (240,429)
Repayment of obligations under capital leases -- (41,044) (41,044)
Decrease in accrued pension liability -- (26,964) (26,964)
Issuance of capital stock 100 -- 100
-------- --------- ---------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 100 (308,437) (308,337)
-------- --------- ---------
EFFECT OF FOREIGN EXCHANGE RATES ON CASH -- (1,573) (1,573)
-------- --------- ---------
CHANGE IN CASH 100 (100) --
CASH at beginning -- -- --
-------- --------- ---------
CASH at end $ 100 $ (100) $ --
======== ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 312,187 $ 277,201
========= =========
NONCASH TRANSACTIONS:
Adjustment to decrease the minimum pension liability
and intangible pension asset $ 22,397 $ 22,397
========= =========
Advances from shareholders transferred to capital for common stock $ 489,812 $ 489,812
========= =========
</TABLE>
See notes to consolidated financial statements.
- 6 -
<PAGE>
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Due from bank - factoring $ 848,694 $ 488,424
Other receivables 26,437 2,637
Inventories 1,426,373 1,237,313
Prepaid expenses 6,544 8,303
----------- -----------
TOTAL CURRENT ASSETS 2,308,048 1,736,677
PROPERTY, PLANT AND EQUIPMENT 585,460 782,322
OTHER ASSETS 249,271 342,281
----------- -----------
$ 3,142,779 $ 2,861,280
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 1,762,990 $ 1,824,953
Current portion of long-term debt 232,618 249,346
Current portion of obligations under capital leases 25,828 42,566
----------- -----------
TOTAL CURRENT LIABILITIES 2,021,436 2,116,865
----------- -----------
LONG-TERM LIABILITIES:
Long-term debt 58,155 311,682
Obligations under capital leases 8,548 36,848
Accrued pension liability 143,288 181,556
Advances from related parties 428,014 970,520
----------- -----------
TOTAL LONG-TERM LIABILITIES 638,005 1,500,606
----------- -----------
TOTAL LIABILITIES 2,659,441 3,617,471
----------- -----------
SHAREHOLDERS' EQUITY (DEFICIENCY):
Capital stock 489,827 15
Accumulated deficit (71,703) (794,248)
Accumulated other comprehensive income:
Foreign currency translation adjustments 65,214 38,042
----------- -----------
TOTAL SHAREHOLDERS' EQUITY (DEFICIENCY) 483,338 (756,191)
----------- -----------
$ 3,142,779 $ 2,861,280
=========== ===========
</TABLE>
See notes to consolidated financial statements.
- 7 -
<PAGE>
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND ACCUMULATED DEFICIT
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
REVENUES $ 14,584,721 $ 11,770,507
COST OF GOODS SOLD (including depreciation of $181,324
and $164,128 for 1998 and 1997) 12,193,513 10,152,797
------------ ------------
GROSS PROFIT 2,391,208 1,617,710
------------ ------------
EXPENSES:
Administration 668,810 663,515
Sales and engineering 551,954 580,032
Amortization 56,235 63,530
Depreciation 24,477 38,915
------------ ------------
1,301,476 1,345,992
------------ ------------
OPERATING INCOME 1,089,732 271,718
------------ ------------
OTHER INCOME (EXPENSE):
Interest expense (367,187) (284,423)
Gain on sale of fixed assets -- 36,717
------------ ------------
(367,187) (247,706)
------------ ------------
NET INCOME 722,545 24,012
ACCUMULATED DEFICIT at beginning (794,248) (818,260)
------------ ------------
ACCUMULATED DEFICIT at end $ (71,703) $ (794,248)
============ ============
Net income per share $ 2.89 $ 1,200.60
============ ============
Number of shares used in per share calculation 250,013 20
============ ============
</TABLE>
See notes to consolidated financial statements.
- 8 -
<PAGE>
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
NET INCOME $722,545 $ 24,012
OTHER COMPREHENSIVE INCOME:
Foreign currency translation 27,172 33,445
-------- --------
COMPREHENSIVE INCOME $749,717 $ 57,457
======== ========
</TABLE>
See notes to consolidated financial statements.
- 9 -
<PAGE>
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 722,545 $ 24,012
Adjustment to reconcile net income to net cash provided by
operating activities:
Gain on disposal of fixed assets -- (36,717)
Amortization 262,036 266,573
--------- ---------
984,581 253,868
--------- ---------
Increase (decrease) in cash attributable to changes in assets and
liabilities:
Due from bank - factoring (360,272) (488,424)
Inventories (189,060) 344,847
Prepaid expense 908 16,190
Other receivables (66) 3,257
Accounts payable and accrued liabilities (61,962) 304,967
--------- ---------
(610,452) 180,837
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 374,129 434,705
--------- ---------
INVESTING ACTIVITIES:
Additions to property, plant and equipment (49,441) (156,206)
Loans receivable from affiliated companies (23,711) (849)
Proceeds on disposal of fixed assets -- 40,132
Proceeds on disposal of other assets 9,033 --
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (64,119) (116,923)
--------- ---------
FINANCING ACTIVITIES:
Increase in long-term debt -- 166,106
Repayment of long-term debt (240,429) (243,743)
Bank indebtedness -- (553,538)
Repayment of obligations under capital leases (41,044) (37,104)
Decrease in accrued pension liability (26,964) (4,611)
Advances from ultimate shareholders -- 343,767
--------- ---------
NET CASH USED IN FINANCING ACTIVITIES (308,437) (329,123)
--------- ---------
EFFECT OF FOREIGN EXCHANGE RATES ON CASH (1,573) 11,341
--------- ---------
CHANGE IN CASH -- --
CASH at beginning -- --
--------- ---------
CASH at end $ -- $ --
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 312,187 $ 284,423
========= =========
NONCASH TRANSACTIONS:
Adjustment to (decrease) increase the minimum pension liability
and intangible pension asset $ (22,397) $ 126,606
========= =========
Advances from shareholders transferred to capital for common stock $ 489,812 $ --
========= =========
</TABLE>
See notes to consolidated financial statements.
- 10 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. PRESENTATION AND BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Pioneer Power, Inc. (hereinafter alternatively referred to as "Power" or
"the Company") and subsidiaries for the period July 28, 1998 (inception) to
December 31, 1998, and its predecessor company, Pioneer Transformers, Ltd.
And subsidiary ("Transformers"), for the years ended December 31, 1998 and
1997.
The operations in the accompanying consolidated financial statements are
those of Transformers, except where the context otherwise required
reference to Power or the Company. Power incurred registration expenses of
$95,125. Intercompany balances and transactions have been eliminated.
Pending Acquisition of Transformers by Power:
The Company has been organized pursuant to the amended and restated asset
exchange agreement dated February 1999 ("agreement") between Provident
Pioneer Partners, L.P. a Delaware Limited partnership and the sole
stockholder of Transformers ("Provident") and Electric & Gas Technology,
Inc. ("ELGT"). The agreement will close upon the effectiveness of the
registration of Power's common stock. Provident will receive 8,000,000
shares of Power's common stock, representing 80% of the outstanding shares
of Power. ELGT is to receive 2,000,000 shares of Power's common stock for a
20% interest in Power, for a $1,250,000 amended note receivable from an
affiliate of Transformers. ELGT is to distribute 1,600,000 of these shares
to its shareholders as a stock dividend. Provident and ELGT will also
receive warrants to purchase Power common stock at prices and dates to be
determined in the future by mutual agreement of ELGT and Provident.
The acquisition by Power of Transformers is to be accounted for as a merger
of companies under common control similar to a pooling of interests and,
accordingly, the historical basis of the assets and liabilities is to be
carried forward and retroactive effect given to the merger in the financial
statements.
Transformers is incorporated in Canada and is in the business of
manufacturing and selling transformers, primarily in Canada. Sales to one
major customer in 1998 and 1997 accounted for approximately 31% and 18% of
total sales for each of the years 1998 and 1997.
The 1998 and 1997 consolidated financial statements of Transformers have
been presented as the predecessor company to Power. Pro forma unaudited
consolidated financial statements of Power for the year ended December 31,
1998 have been presented reflecting the acquisition of Transformers. The
pro forma adjustments represent the combining of Power and Transformers for
the year ended December 31, 1998 as though it were a pooling-of-interests.
The $1,250,000 amended note receivable is due March 1, 2001 with interest
at prime may be prepaid with no penalty and has been reflected as a
reduction of shareholders' equity in the pro forma consolidated balance as
of December 31, 1998.
Inventories:
Raw materials are valued at the lower of cost and replacement cost.
Work-in-process and finished goods are valued at the lower of cost and net
realizable value. Cost is determined by the average cost method.
- 11 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. PRESENTATION AND BASIS OF CONSOLIDATION (Continued)
Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. Depreciation is
provided using the following methods and annual rates:
Asset Basis Rate
----- ----- ----
Building Declining 4%
Machinery and equipment Straight-Line 20%
Furniture and fixtures Declining 20%
Computer hardware and software Declining 20%
Leasehold improvements Declining 20%
Automobiles Declining 30%
Deferred Financing Costs:
Deferred financing costs are recorded at cost and are being amortized on a
straight-line basis over the term of the related loan.
Foreign Currency:
The functional currency of Transformers is Canadian dollars. The financial
statements have been translated using exchange rates in effect at period
end for assets and liabilities and average exchange rates during the period
for results of operations. Related translation adjustments are reported as
other comprehensive income. Exchange gains or losses resulting from
transactions denominated in foreign currencies are credited or charged to
operations.
Earnings Per Share:
The Company adopted SFAS 128, "Earnings Per Share". The per share amounts
were calculated by using the weighted average number of common shares
outstanding. The effect of exercising the warrants has not been presented
for purposes of pro forma diluted earnings per share because the effect
would have been anti-dilutive.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from
those estimates.
- 12 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. PRESENTATION AND BASIS OF CONSOLIDATION (Continued)
Long-Lived Assets:
The Company follows the requirements of Statement of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of" and review for impairment assets
held and used by the companies whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be fully recoverable.
For 1998 and 1997, no significant write-downs have been recorded.
Year 2000 Readiness:
The Company uses a significant number of computer software programs in its
internal operations, including applications used in its financial, product
development, order management and manufacturing systems. The inability of
computer software programs to accurately recognize, interpret and process
date codes designating the Year 2000 and beyond could cause systems to
yield inaccurate results or encounter operating problems including
interruption of the business operations such systems control. Based on
information currently available, the Company believes that its internal
systems currently are or, by such time as is necessary to avoid a material
adverse effect upon the Company, will be capable of functioning with Year
2000 problems. Also based on information thus far available, the Company
does not believe it will incur expenditures in dealing with Year 2000
issues that will have a material adverse effect on the financial condition
of Pioneer.
The Company may also be exposed to risks from computer systems of other
parties with which the Company transacts business. If problems were to
develop with the systems of such other parties, these problems could have a
material adverse effect on the Company. Accordingly, the Company is taking
steps, including contacting its strategic suppliers and large customers, in
order to determine the extent to which the Company may be vulnerable to
such other parties' failure to remedy their own Year 2000 issues and to
ascertain what actions, if any, may be required to be taken by the Company
in response to such risks.
The Company has expended, and will continue to expend, appropriate
resources to address this issue on a timely basis.
3. DUE FROM BANK - FACTORING
Due from bank - factoring consists of the following:
1998 1997
---------- ----------
Accounts receivable $1,853,287 $2,022,312
Less: Bank advances 1,004,593 1,533,888
---------- ----------
Due from bank, net $ 848,694 $ 488,424
========== ==========
In February 1995, the Company has entered into an agreement with a
financial institution whereby all of the accounts receivable are sold to
the lender. To the extent that the Company draws funds prior to the
collection of the accounts receivable, the Company pays interest at the
rate of 2% above the prime rate. The Company is contingently liable for
credit risk merchandise disputes and other claims on accounts receivable
sold to the lender. Accounts receivable in excess of the funds drawn are
reflected in the accompanying consolidated balance sheets as "Due from Bank
- Factoring".
- 13 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. INVENTORIES
1998 1997
---------- ----------
Raw materials $ 816,500 $ 781,655
Work-in-process 545,100 414,310
Finished goods 64,773 41,348
---------- ----------
$1,426,373 $1,237,313
========== ==========
5. PROPERTY AND EQUIPMENT
1998 1997
---------- ----------
Land $ 4,892 $ 5,243
Building 164,330 155,765
Machinery and equipment 827,271 854,820
Furniture and fixtures 92,282 98,918
Computer hardware and software 102,794 105,600
Leasehold improvements 26,140 28,020
Automobiles -- 13,667
---------- ----------
1,217,709 1,262,033
Less: Accumulated depreciation 632,249 479,711
---------- ----------
$ 585,460 $ 782,322
========== ==========
Included in furniture and fixtures and computer hardware and software as of
December 31, 1998 are assets acquired under capital lease having an
original cost of $13,990 and $87,960 and a net carrying amount of $6,540
and $49,727, respectively.
- 14 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. OTHER ASSETS
1998 1997
-------- --------
Organization expenses $144,881 $155,299
Deferred financing costs 124,466 133,416
Other 23,682 25,385
-------- --------
293,029 314,100
Less: Accumulated amortization 224,939 175,397
-------- --------
68,090 138,703
Intangible asset - pension plan 181,181 203,578
-------- --------
$249,271 $342,281
======== ========
Through December 31, 1998, organization expenses, stated at cost less
accumulated amortization, have been amortized on a straight-line basis
using a five-year period. In accordance with Statement of Position 98-5,
"Reporting on the Costs of Start-Up Activities" issued by the American
Institute of Certified Public Accountants, unamortized organization costs
at December 31, 1998 of $35,349 are to be charged to operations in 1999 and
reported as the cumulative effect of a change in accounting principle.
7. DEBT
The Company has a credit line with the lender of approximately $1,800,000
consisting of a revolving credit line bearing interest at prime plus 2% as
well as a fixed loan. As of December 31, 1998 and 1997, the revolving
credit line totaled $1,004,593 and $1,533,388, respectively, and is shown
as a reduction of accounts receivable (Note 3). The fixed loan consists of
the following:
1998 1997
-------- --------
Balance at December 31 $290,773 $561,028
Less: Current maturity 232,618 249,346
-------- --------
Long-term Debt $ 58,155 $311,682
======== ========
The loan is payable in monthly payments of $19,385 in 1998 and $20,779 in
1997, plus interest at prime plus 2.5%, and matures in March 2000. Annual
maturities are $232,618 in 1998 and $58,155 in 1999.
The financing as of December 31, 1998 is secured by a first ranking
hypothec and security interest on all assets, a specific charge on
machinery and equipment, personal guarantees of $5,217,600 bank
indebtedness and $4,000,000 loan and a first ranking hypothec (mortgage
equivalent) of $3,913,200 on immovable (real) property by its wholly-owned
subsidiary.
Interest during the year amounted to approximately $37,800.
- 15 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OBLIGATIONS UNDER CAPITAL LEASES
The Company lease office equipment under capital lease contracts expiring
at various dates to April 2000. The minimum payments and the balance of
lease obligations under these contracts are as follows:
1998 1997
------- --------
1998 $ -- $ 48,585
1999 27,830 29,832
2000 8,704 9,329
------- --------
Total payments 36,534 87,746
Less: Interest between 8.9% and 20.7% 2,158 8,332
------- --------
Net minimum lease payments 34,376 79,414
Less: Current portion 25,828 42,566
------- --------
$ 8,548 $ 36,848
======= ========
9. CONTINGENCY
Transformers is contingently liable for an outstanding letter of credit on
December 31, 1998 in the amount of $35,871 which matures on March 14, 1999.
10. PENSION PLANS
Transformers maintains two defined benefit pension plans for all eligible
employees who meet certain requirements of age, length of service and hour
worked per year.
The benefits provided by the plans are based upon years of service and the
employees' average compensation, as defined. Transformers' policy is to
fund the pension plans in amounts which comply with contribution limits
imposed by law.
- 16 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PENSION PLANS (Continued)
The following tables set forth the plans' funded status at December 31,
1998 and 1997 (foreign currency translation adjustments reflected in the
tables represent the difference from translating year end balances at their
respective year end exchange rates and the other components at average
rates of exchange):
1998 1997
----------- -----------
Change in benefit obligation:
Benefit obligation at beginning of year $ 1,012,716 $ 934,399
Service cost - employer 38,356 33,943
Participants' contributions 9,370 11,483
Interest cost 75,162 70,270
Actuarial loss -- 72,581
Benefits paid (44,827) (67,019)
Foreign currency translation adjustments (70,475) (42,941)
----------- -----------
Benefit obligation at end of year 1,020,302 1,012,716
----------- -----------
Change in plan assets:
Fair value of plan assets at
beginning of year 818,227 835,465
Actual return on plan assets 44,019 17,116
Employer contribution 87,835 56,693
Plan participants' contributions 9,370 11,483
Benefits paid (44,827) (67,019)
Foreign currency translation adjustments (58,025) (35,511)
----------- -----------
Fair value of plan assets at end of year 856,599 818,227
----------- -----------
Funded status (163,703) (194,489)
Unrecognized actuarial (gain) (18,262) (37,332)
Unrecognized prior service cost 121,766 137,024
Transition obligation 98,092 116,819
----------- -----------
Net amount recognized $ 37,893 $ 22,022
=========== ===========
Amounts recognized in the statement
of financial position consist of:
Prepaid benefit cost $ 37,893 $ 22,022
Accrued benefit liability (181,181) (203,578)
Intangible asset 181,181 203,578
----------- -----------
Net amount recognized $ 37,893 $ 22,022
=========== ===========
- 17 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. PENSION PLANS (Continued)
1998 1997
-------- --------
Weighted-average assumptions as of December 31:
Discount rate 7.50% 7.50%
Expected return on plan assets 7.50% 7.50%
Rate of compensation increase (one plan has a 5.5%
note factor, the other has none) 2.30% 2.30%
Components of net periodic benefit cost:
Service cost $ 38,356 $ 33,943
Interest cost 75,162 70,270
Expected return on plan assets (61,140) (62,036)
Amortization of prior service cost 7,954 1,806
Amortization of transition obligation 9,572 10,255
-------- --------
Net periodic benefit cost $ 69,904 $ 54,238
======== ========
The accumulated benefit obligation (same as projected benefit obligation),
and fair value of plan assets for the pension plan with accumulated benefit
obligations in excess of plan assets were $626,726 and $459,575 as of
December 31, 1998, and $554,036 and $358,918 as of December 31, 1997.
11. CAPITAL STOCK
Pro forma
Historical Adjustments Pro forma
---------- ----------- ---------
(Unaudited)
Pioneer Power:
Preferred stock - par value $1,
authorized 5,000,000 shares,
issued and outstanding -0- shares
Common stock - par value $0.01,
authorized 30,000,000 shares,
issued and outstanding
10,000,000 (pro forma) $ 100 $ 99,900 $ 100,000
======= ======== =========
The warrants to be issued to Provident and to ELGT are for the purchase of
2,666,400 and 666,667 shares respectively of Power common stock and are
exercisable at $4 per share through 2004. The Company is in the process of
establishing a stock option plan.
- 18 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. CAPITAL STOCK (Continued) 1998 1997
--------- --------
Pioneer Transformers:
Authorized without limit as to
number and without par value:
Class A redeemable (at an amount equal to
the fair market value at the date of
issue), non-voting shares
Class B redeemable (at $.70 per share),
voting share with the right to a
non-cumulative annual dividend
of $0.04 per share
Class C non-voting shares
Common shares
Issued - 750,000 (1998) 20 (1997) $ 489,827 $ 15
========= ========
In September 1998, advances from shareholders of $489,812 were transferred
to capital stock and 749,980 shares of common stock were issued.
12. FINANCIAL INSTRUMENTS
Credit Risk:
Financial instruments which potentially subject the Company to credit risk
are the receivables sold to the lender which are on a recourse basis. The
Company monitors these receivables and evaluates customers for credit as a
standard procedure.
Fair Value:
Due from bank - factoring, other receivables, bank indebtedness and
accounts payable and accrued liabilities are all short-term in nature and
as such, their carrying values approximate fair values.
The carrying amount of long-term debt approximates fair value since the
interest rate in this instrument changes with market interest rates.
- 19 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
13. INCOME TAXES
The difference between the statutory tax rates and the companies' effective
tax rates are as follows:
Tax Benefit (Expense)
Percentage
------------------------
Historical Pro forma
---------- ---------
Power
Federal statutory tax rate (a) 34% 35%
(the Canadian rate is used for Transformers)
Utilization of net operating loss carryforward 34 35
---- ----
Effect rate --% --%
==== ====
1998 1997
---- ----
Transformers
Federal statutory tax rate (a) 38% 38%
(the Canadian rate is used for Transformers)
Utilization of net operating loss carryforward 38 38
---- ----
Effect rate --% --%
==== ====
(a) The provision for income taxes was offset by utilization of net
operating loss carryforwards.
Deferred taxes arise from temporary differences in the recognition of
certain expenses for tax and financial statement purposes. Deferred tax
assets and liabilities are recognized principally for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities. The companies' have deferred tax assets comprised of unused
net operating loss carryforwards which, for Power amounted to $32,000
(historical) and $39,000 (pro forma) for 1998, and amounted to $7,000 in
1998 and $266,000 in 1997 for Transformers. At December 31, 1998 and 1997,
management determined that realization of these benefits is not assured and
has provided a valuation allowance for the entire amount of such benefits.
Transformers has accumulated losses of $18,726 - Federal and Ontario and
$73,097 - Quebec which may be carried forward and used to reduce taxable
income in future years, the tax benefits of which will be recognized when
they are used. These accumulated losses expire in 2004.
- 20 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. RELATED PARTY TRANSACTIONS
Transformers:
Advances from related parties consist of the following:
1998 1997
-------- --------
Advances to shareholders $ -- $524,310
Notes payable - shareholders 182,616 190,156
Note payable - affiliate 228,270 237,694
Payable to affiliate 17,128 18,360
-------- --------
$428,014 $970,520
======== ========
Analysis of transactions is as follows:
Advances Notes Payable
from --------------------- Payable to
Shareholder Shareholder Affiliate Affiliate
----------- ----------- --------- ---------
Balance - December 31, 1996 $ 524,310 $ 95,076 $ -- $ 18,360
Advances -- 95,080 237,694 --
--------- --------- --------- ---------
Balance - December 31, 1997 524,310 190,156 237,694 18,360
Transfer to capital (489,812) -- -- --
Adjustment primarily for
exchange note differential (34,498) (7,540) (9,424) (1,232)
--------- --------- --------- ---------
Balance - December 31, 1998 $ -- $ 182,616 $ 228,270 $ 17,128
========= ========= ========= =========
The notes bear interest at 12% and are due in 2002. There was no interest
on the shareholder advances or payable to affiliate. Interest expense for
the notes was $74,000 in 1998 and $24,000 in 1997.
At December 31, 1998, other receivables include approximately $23,700 from
a related company.
Transformers has entered into a management arrangement with a related party
and incurred a fee of approximately $70,000 for services rendered during
1998.
Power:
In 1998, Company received a $35,000 advance from an affiliate without
interest and no specified repayment terms. The obligation is not expected
to be repaid during 1999.
- 21 -
<PAGE>
PIONEER POWER, INC. AND SUBSIDIARIES
AND
PIONEER TRANSFORMERS LTD. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. ENVIRONMENTAL
Various laws impose liability for the costs of removal or remediation of
hazardous or toxic substances on the properties Transformers owns or
operates, regardless of whether or not Transformers knew of or were
responsible for, the presence of such hazardous or toxic substances.
Depending on the circumstances, Transformers could also be liable for
personal injury associated with exposure to asbestos-containing materials.
Environmental laws also may restrict the manner in which property may be
used or businesses may be operated, and these restrictions may result in
expenditures and require interruption of such businesses. The cost of
defending against, and ultimately paying or settling, claims of liability
or of remediating a contaminated property could have a material adverse
effect on our financial condition or results of operations. Transformers
does not know of any environmental problems that effect or that may effect
its business.
- 22 -
AMENDED AND RESTATED
ASSET EXCHANGE AGREEMENT
AGREEMENT, dated as of February 8, 1999, by and among ELECTRIC & GAS
TECHNOLOGY, INC., a Texas corporation with offices at 13636 Neutron Road, Dallas
Texas 75244-4410 ("ELGT"), and PROVIDENT PIONEER PARTNERS, L.P., a Delaware
limited partnership with offices at 122 East 42nd Street, Suite 1115, New York,
New York 10168 ("Provident"), and PIONEER POWER, INC., a Delaware corporation
("Newco").
W I T N E S E T H:
WHEREAS, on November 23, 1998, ELGT and Provident entered into the Asset
Exchange Agreement (the "Prior Agreement"); and
WHEREAS, the parties desire to add Newco as a party and to restate and
amend all of the terms and provisions of the Prior Agreement in their entirety,
in order that such terms and provisions shall, from and after the date hereof,
solely be as hereinafter set forth in this Agreement; and
WHEREAS, the parties desire to enter into the Transaction (as defined
below), subject to the terms and conditions set forth below;
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. The Transaction. Prior to the Closing (as hereinafter defined), the
parties shall engage in the following with respect to the transaction
contemplated by this Agreement (the "Transaction"):
(a) ELGT has caused a new wholly-owned subsidiary ("Newco") to be
organized in the State of Delaware under the name "Pioneer Power, Inc."
(b) Provident shall transfer to Newco all of the equity interests in
Provident or PTL (as defined below) in exchange for (i) approximately
eighty percent (80%) of the outstanding capital stock of Newco and (ii)
warrants to purchase additional shares of Newco in such quantity, at such
prices and at such times as will be mutually agreed upon by the parties
(such stock and warrants being hereinafter collectively referred to as the
"Provident Newco Stock"). As of the date hereof: (i) Provident owns (and
on the Closing Date will own) all of the outstanding capital stock of
Pioneer Transformers Ltd., a Canadian company engaged in the manufacture
and sale of electrical power and distribution transformers ("PTL"); and
(ii) PTL, in turn, owns (and on the Closing Date will own) all of the
outstanding capital stock of Bernard Granby Realty, Inc., a Canadian
corporation which owns certain real property located in Granby, Quebec,
Canada.
2
<PAGE>
(c) (i) ELGT and Retech (as hereinafter defined) shall assign and
transfer the Note (as defined below) to Newco in exchange for (A)
approximately twenty percent (20%) of the outstanding capital stock of
Newco; and (B) warrants to purchase additional shares of Newco in such
quantity, at such prices and at such times as will be mutually agreed upon
by the parties (such stock and warrants being hereinafter collectively
referred to as the "ELGT Newco Stock"). On or prior to the Closing Date,
ACBC (as defined below) and ELGT and/or Retech shall enter into an
agreement amending the Note to provide for an outstanding balance of
$1,250,000.00 as of the Closing Date, and an amended Promissory Note
evidencing same will be duly issued (the "Note Amendment"). ELGT will then
"spinoff" or effect a dividend and distribution of all of the ELGT Newco
Stock, except for the Retained Newco Stock (as hereinafter defined), if
any, to the ELGT stockholders, thereby making Newco a public company (the
"Spinoff"). At the Closing, ELGT and Retech shall deliver or cause to be
delivered to Newco documentation evidencing the assignment and transfer of
the Note.
(ii) For purposes hereof, the "Note" shall mean the Promissory
Note, dated May 3, 1995, issued by American Circuit Breaker
Corporation, a New York corporation and an affiliate of Provident
("ACBC"), to Retech, Inc. (formerly Superior Technology, Inc.), a
Texas corporation and wholly owned subsidiary of ELGT ("Retech"),
evidencing a loan in the principal amount of $1,250,000.00, as amended
by the Note Amendment.
3
<PAGE>
2. Retained Newco Stock. ELGT hereby represents and warrants to Provident
that, in the event that any ELGT Newco Stock will be retained by ELGT and not
distributed to the public stockholders of ELGT as part of the Spinoff, but in no
event exceeding four percent (4%) of the total outstanding capital stock of
Newco (the "Retained Newco Stock"), then such Retained Newco Stock shall not at
any time be assigned or otherwise transferred by ELGT in any manner whatsoever,
except in compliance with applicable laws and in a manner which does not
otherwise affect the status of the Transaction under applicable tax and
securities laws, respectively. Notwithstanding the foregoing, in the event that
any ELGT Proceedings (as hereinafter defined) shall at any time be commenced
against ELGT, then upon receipt of written demand therefor from Provident and/or
Newco, ELGT shall promptly effect a pro-rata stock dividend or distribution of
all of the Retained Newco Stock to ELGT's public stockholders. Notwithstanding
anything to the contrary herein contained, the representations, warranties,
covenants and agreements in respect of the Retained Newco Stock set forth in
this Section 2 shall survive the Closing hereunder without any limitation. In
the event that Provident and/or Newco and/or their respective directors,
officers, stockholders, partners or agents shall at any time suffer or incur any
Liability (as hereinafter defined in Section 7(a)) arising out of any
distribution of the Retained Newco Stock or otherwise, then ELGT shall indemnify
Provident and/or Newco pursuant to the indemnification provisions set forth in
Section 7 hereof.
4
<PAGE>
3. Litigation. In June, 1997, the Litigation (as defined below) was
commenced regarding certain transactions related to the Note, and each of the
parties has asserted claims against the other in connection with the Note and
such related transactions. The Transaction is being made and entered into in
consideration of the settlement of the Litigation and all claims asserted in
connection therewith. On December 12, 1997, the Litigation was dismissed without
prejudice. At the Closing, the parties to the Litigation and their respective
affiliates shall exchange mutual general releases of any and all claims against
each other, whether relating to the Litigation, the Note or otherwise, and ELGT
shall utilize its best efforts to obtain documentation evidencing the
termination of the Litigation with prejudice. For purposes hereof, the
"Litigation" shall mean Electric & Gas Technology, Inc. and Hydel Enterprises,
Inc. vs. American Circuit Breaker Corporation, Cause No. 3:97-CV-1888-T, filed
in the United States District Court for the Northern District of Texas.
4. Closing Date; Transaction Effective Date.
(a) The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of Messrs. Shiboleth,
Yisraeli, Roberts & Zisman, L.L.P., 350 Fifth Avenue, Suite 6001, New York,
New York 10118-6098, at 10:00 A.M., local time, on the date which shall be
the tenth (10th) business day following the Registration Statement
Effective Date (as hereinafter defined) (the "Closing Date").
5
<PAGE>
(b) Notwithstanding anything to the contrary herein contained, upon
the occurrence of the Closing hereunder and the satisfaction of all of the
conditions set forth in Section 11 hereof and compliance with the other
terms and conditions of this Agreement, then for accounting purposes, the
Transaction shall be deemed to be effective as of July 31, 1998
(the"Transaction Effective Date"). Accordingly, upon the Closing, effective
control of Provident's equity interests shall be deemed transferred to
Newco as of the Transaction Effective Date without restriction, except
those required to protect Provident and/or its partners.
5. Registration Statement. (a) As soon as practicable following the date
hereof, ELGT shall cause Newco to prepare and file a registration statement on
Form 10SB with the U.S. Securities and Exchange Commission ("SEC") with respect
to the Transaction, including the Spinoff (the "Registration Statement"). In
addition, concurrently with the filing of the Registration Statement, ELGT shall
prepare and file with the SEC an information statement (the "Information
Statement") describing the Transaction and Spinoff which shall be distributed to
ELGT's stockholders following the Closing. The parties shall cause each of the
Registration Statement and Information Statement to comply with all applicable
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and
Securities Exchange Act of 1934, as amended (the "1934 Act"), respectively, the
rules and regulations promulgated thereunder, and all applicable state
securities laws, rules and regulations. Notwithstanding anything
6
<PAGE>
to the contrary herein contained, this Agreement and the Transaction shall be
subject to, and conditioned upon, the Registration Statement becoming or being
deemed effective by the SEC (the "Registration Statement Effective Date") on or
prior to July 31, 1999 (the "Outside Date").
(b) Provident and ELGT shall pay all costs and expenses in
connection with the preparation and filing of the Registration Statement
and Information Statement, respectively, including without limitation,
filing fees, printing, accounting, legal, broker and/or finders fees, in a
manner to be agreed upon by the parties.
7
<PAGE>
6. Resale Registration Statement. Upon written demand by Provident at any
time following the Closing Date, Newco shall prepare and file a registration
statement with the SEC on Form SB-2 or on any other form for which Newco shall
then be eligible (the "Resale Registration Statement") to register the resale by
Provident and/or its partners of the Provident Newco Stock from time to time in
open market transactions or in private transactions. Newco shall be required to
take any and all steps reasonably necessary to make the Resale Registration
Statement effective and to maintain the effectiveness thereof, including the
filing of such prospectus supplements and/or post-effective amendments
(including post-effective amendments necessary to update the financial
statements of Newco included in the Resale Registration Statement) as shall be
necessary to maintain the effectiveness of the Resale Registration Statement and
to allow Provident and/or its partners to sell Provident Newco Stock pursuant
thereto. Newco shall maintain the effectiveness of the Resale Registration
Statement until such time as Provident and/or its partners shall be permitted to
sell all of the Provident Newco Stock pursuant to Rule 144(k) without
restriction or limitation as to volume or manner of sale. All expenses incurred
in connection with the preparation and filing of such Resale Registration
Statement, including without limitation, all registration and filing fees,
printing expenses, expenses of compliance with blue sky laws, legal, accounting
and other fees and expenses, shall be borne solely by Newco. ELGT shall furnish
or cause to be furnished any documentation
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reasonably required to evidence consent or approval relating to the preparation
and filing of such Resale Registration Statement.
7. Indemnification. (a) Provident hereby agrees to indemnify and hold
harmless ELGT and its officers and directors (the "Provident Indemnified
Parties") from and against any and all claims, demands, actions, losses, costs,
damages, liabilities and expenses (including, without limitation, reasonable
attorneys' fees and expenses) (collectively, the "Liabilities"), based upon,
arising out of or resulting from any untrue statement of a material fact
contained in the Registration Statement and/or Information Statement, or any
omission to state therein a material fact necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading, except insofar as any such Liabilities are based upon,
arise out of or result from any information furnished by ELGT and/or its
directors, officers, agents or representatives.
(b) ELGT hereby agrees to indemnify and hold harmless Provident and/or
Newco and their respective stockholders, partners, directors, officers and
agents (the "ELGT Indemnified Parties") from and against any and all
Liabilities based upon, arising out of or resulting from: (i) any untrue
statement of a material fact contained in the Registration Statement,
and/or Information Statement, or any omission to state therein a material
fact necessary in order to make the statements made herein, in light of the
circumstances under which they were made, not misleading, based upon,
arising out of or resulting
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from any information furnished by ELGT and/or its directors, officers, agents or
representatives; and (ii) the Retained Newco Stock as set forth in Section 2
hereof.
(c) Upon receipt of actual notice of any claim pursuant to which any
Indemnified Party (i.e., Provident Indemnified Party or ELGT Indemnified
Party) may seek indemnification under this Section 7 (a "Claim"), the
Indemnified Party shall promptly submit notice thereof to the party
required to furnish indemnification under this Section 7 (the "Indemnifying
Party"). The failure of the Indemnified Party so to notify the Indemnifying
Party of any such Claim shall not relieve the Indemnifying Party from any
liability it may have under this Section 7, to the extent that such failure
to notify is not prejudicial. The Indemnifying Party shall have the right
to conduct the defense of any Claim and litigation arising therefrom;
provided, however, that the Indemnified Party shall have the right to
employ separate counsel and to participate in such defense, but the fees
and expenses of any such separate counsel shall be at the sole expense of
the Indemnified Party. The Indemnifying Party and the Indemnified Party
shall cooperate with, and assist, one another in the defense of any Claim
hereunder. No settlement of any Claim shall be made without the consent of
the Indemnified Party, which consent shall not be unreasonably withheld or
delayed.
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8. Representations of ELGT.
ELGT hereby makes the following representations and warranties to
Provident:
(a) Valid Corporate Existence. ELGT is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas,
and has the corporate power to carry on its business as now being conducted
and to own its assets. ELGT is duly qualified to conduct business and is in
good standing as a foreign corporation in those jurisdictions in which ELGT
required to qualify in order to own its assets and properties or to carry
on its business.
(b) No Consents. There are no consents and approvals of governmental
and other regulatory agencies, foreign or domestic, or of other third
parties which are required to be obtained by or on behalf of ELGT in order
to enable ELGT to enter into and carry out this Agreement and the
Transaction in all material respects.
(c) Corporate Authority; Binding Nature of Agreement. ELGT has the
full power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the Transaction contemplated hereby have been duly
authorized by ELGT and the Board of Directors of ELGT and no other
corporate proceedings on the part of ELGT are necessary in order to
authorize the execution and delivery of this Agreement and the consummation
of the Transaction contemplated hereby.
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This Agreement constitutes the valid and binding obligation of ELGT and is
enforceable in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium or similar laws relating to the enforcement of
creditors' rights generally and the application of general principles of
equity.
(d) ELGT Proceedings. Except as set forth on Schedule A annexed
hereto, there are no actions, suits, proceedings or governmental
investigations relating to or involving ELGT by or before any court or
governmental or other regulatory agency or commission, including without
limitation, the SEC (collectively, "ELGT Proceedings"), either pending or,
to the knowledge of ELGT, after reasonable inquiry, threatened, or any
outstanding order, injunction, judgment, writ, award or decree against
ELGT, its business, properties and/or assets.
(e) No Breach. Neither the execution and delivery of this Agreement
nor compliance by ELGT with any of the provisions hereof nor consummation
of the transactions contemplated hereby, will:
(i) violate or conflict with any provision of the Articles of
Incorporation or By-Laws of ELGT;
(ii) violate or, alone or with notice or the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a default under,
the terms of any agreement or other document or undertaking, oral or
written, to which ELGT is a party or by which it may be bound
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(except for such violations, conflicts, breaches or defaults as to
which required waivers or consents by other parties have been, or
will, prior to the Closing, be obtained);
(iii) violate any judgment, order, injunction, decree or award
against, or binding upon ELGT and/or its assets or business; or
(iv) violate any law or regulation of any jurisdiction relating
to ELGT and/or its assets, business or securities.
8A. Representations Regarding Newco.
ELGT hereby makes the following representations and warranties to Provident
with respect to Newco:
(a) Valid Corporate Existence. Newco is a corporation duly organized,
validly existing and in good standing under the laws of the State of
Delaware, and has the corporate power to carry on its business as now being
conducted and to own its assets.
(b) No Consents. There are no consents and approvals of governmental
and other regulatory agencies, foreign or domestic, or of other third
parties which are required to be obtained by or on behalf of Newco in order
to enable Newco to enter into and carry out this Agreement and the
Transaction in all material respects.
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(c) Corporate Authority; Binding Nature of Agreement. Newco has the
full power and authority to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and the
consummation of the Transaction contemplated hereby have been duly
authorized by ELGT and the Board of Directors of Newco and no other
corporate proceedings on the part of Newco are necessary in order to
authorize the execution and delivery of this Agreement and the consummation
of the Transaction contemplated hereby. This Agreement constitutes the
valid and binding obligation of Newco and is enforceable in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium or
similar laws relating to the enforcement of creditors' rights generally and
the application of general principles of equity.
(d) No Proceedings. There are no actions, suits, proceedings or
governmental investigations relating to or involving Newco by or before any
court or governmental or other regulatory agency or commission, including
without limitation, the SEC, either pending or, to the knowledge of ELGT,
after reasonable inquiry, threatened, or any outstanding order, injunction,
judgment, writ, award or decree against Newco, its business, properties
and/or assets.
(e) No Breach. Neither the execution and delivery of this Agreement
nor compliance by Newco with any of the provisions hereof nor consummation
of the transactions contemplated hereby, will:
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(i) violate or conflict with any provision of the Certificate of
Incorporation or By-Laws of Newco;
(ii) violate or, alone or with notice or the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a default under,
the terms of any agreement or other document or undertaking, oral or
written, to which Newco is a party or by which it may be bound (except
for such violations, conflicts, breaches or defaults as to which
required waivers or consents by other parties have been, or will,
prior to the Closing, be obtained);
(iii) violate any judgment, order, injunction, decree or award
against, or binding upon Newco and/or its assets or business; or
(iv) violate any law or regulation of any jurisdiction relating
to Newco and/or its assets, business or securities.
(f) Assets; Liabilities: Newco has no assets or properties except as
set forth in Schedule B annexed hereto. In addition, Newco has no debts,
liabilities, obligations, contracts or commitments of any kind or nature
whatsoever (the "Liabilities") except as set forth on Schedule B-1 annexed
hereto, and since its date of incorporation (July 28, 1998), Newco has not
incurred any such Liabilities except as set forth on said Schedule B-1.
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<PAGE>
9. Representations of Provident.
Provident hereby makes the following representations and warranties to
ELGT:
(a) Valid Existence. Provident is a limited partnership duly organized
and validly existing under the laws of the State of Delaware,and has the
power to carry on its business as now being conducted and to own its
assets.
(b) No Consents. There are no consents and approvals of governmental
and other regulatory agencies, foreign or domestic, or of other third
parties which are required to be obtained by or on behalf of Provident in
order to enable Provident to enter into and carry out this Agreement and
the Transaction in all material respects.
(c) Binding Nature of Agreement. Provident has the power to enter into
this Agreement and to carry out its obligations hereunder. This Agreement
constitutes the valid and binding obligation of Provident and is
enforceable in accordance with its terms, subject to applicable bankruptcy,
reorganization, moratorium or similar laws relating to the enforcement of
creditors' rights generally and the application of general principles of
equity.
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(d) No Proceedings. There are no actions, suits, proceedings or
governmental investigations relating to or involving Provident by or before
any court or governmental or other regulatory agency or commission,
including without limitation, the SEC, either pending or, to the knowledge
of Provident, after reasonable inquiry, threatened, or any outstanding
order, injunction, judgment, writ, award or decree against Provident, its
business, properties and/or assets.
(e) No Breach. Neither the execution and delivery of this Agreement
nor compliance by Provident with any of the provisions hereof nor
consummation of the transactions contemplated hereby, will:
(i) violate or conflict with any provision of the partnership
agreement or other organizational document of Provident;
(ii) violate or, alone or with notice or the passage of time,
result in the material breach or termination of, or otherwise give any
contracting party the right to terminate, or declare a default under,
the terms of any agreement or other document or undertaking, oral or
written, to which Provident is a party or by which it may be bound
(except for such violations, conflicts, breaches or defaults as to
which required waivers or consents by other parties have been, or
will, prior to the Closing, be obtained);
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(iii) violate any judgment, order, injunction, decree or award
against, or binding upon, Provident; or
(iv) violate any law or regulation of any jurisdiction relating
to Provident.
10. Access. From and after the date hereof and until the Closing or earlier
termination of this Agreement, Provident shall afford to ELGT and its
representatives reasonable access, during regular business hours and upon
reasonable prior notice, to the books and records of Provident and/or PTL.
11. Conditions to Closing .
(a) Provident Conditions. The obligations of Provident to enter
into and complete the Closing are subject to the fulfillment, on or
prior to the Closing Date, of each of the following conditions, any
one or more of which may be waived by Provident (except when the
fulfillment of such condition is a requirement of law):
(i) Representations. All representations and warranties of
ELGT and/or Newco contained in this Agreement or other document
delivered pursuant hereto shall be true and correct in all
material respects as of the Closing Date, as if made at the
Closing and as of the Closing Date.
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(ii) No Actions. No action, suit, proceeding or
investigation shall have been instituted, and be continuing
before a court or before or by a governmental body or agency, or
shall have been threatened and be unresolved, to restrain or to
prevent or to obtain damages in respect of, the carrying out of
the Transaction.
(iii) Registration Statement. The Registration Statement
shall become or be deemed effective by the SEC on or prior to the
Outside Date (July 31, 1999).
(iv) Transaction. Each of the steps of the Transaction shall
have been duly completed in accordance with Section 1 hereof.
(v) Termination. The parties to the Litigation (i.e., ACBC
and ELGT and/or Retech) shall have duly executed and delivered
documentation evidencing termination of such Litigation with
prejudice, if available.
(vi) Note Amendment. ACBC and ELGT and/or Retech shall have
duly executed and delivered the Note Amendment.
(vii) Market Makers. Provident shall receive assurances that
there shall be not less than two (2) registered market makers
acceptable to Provident and its counsel who shall participate in
the quoting of Newco's stock, and such stock shall be quoted on
the OTC
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Bulletin Board or listed on NASDAQ immediately following the
Closing, which assurances shall be acceptable to Provident and
its counsel in their sole discretion.
(b) ELGT Conditions. The obligations of ELGT to enter into and
complete the Closing are subject to the fulfillment, on or prior to the
Closing Date, of each of the following conditions, any one or more of which
may be waived by ELGT (except when the fulfillment of such condition is a
requirement of law):
(i) Representations. All representations and warranties of
Provident contained in this Agreement or other document delivered
pursuant hereto shall be true and correct in all material respects as
of the Closing Date, as if made at the Closing and as of the Closing
Date. Notwithstanding the foregoing, on the Closing Date, the audited
consolidated financial statements of PTL for the year ended December
31, 1997, and the unaudited financial statements of PTL for the period
ended June 30 1998, respectively, previously delivered by Provident to
ELGT, shall be the true and correct in all material respects as of the
respective dates thereof.
(ii) No Actions. No action, suit, proceeding or investigation
shall have been instituted, and be continuing before a court or before
or by a governmental body or agency, or shall have been threatened and
be unresolved, to restrain or to prevent or to obtain damages in
respect of, the carrying out of the Transaction.
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(iii) Registration Statement. The Registration Statement shall
become or be deemed effective by the SEC on or prior to the Outside
Date (July 31, 1999).
(iv) Transaction. Each of the steps of the Transaction shall have
been duly completed in accordance with Section 1 hereof.
(v) Stockholders' Equity. ELGT shall receive reasonable
assurances that, immediately following the Closing, Newco will have
stockholders' equity of not less than $500,000.00 in the aggregate
(the "Equity Amount"); provided, however, that the determination of
the Equity Amount shall be made without regard for, or taking into
account, the accounting treatment of the Note.
12. Survival. The parties hereby agree that their respective
representations, warranties, covenants and agreements contained in this
Agreement shall survive the Closing for a period of one (1) year, except as set
forth in Sections 2 and 7 hereof, respectively, and as otherwise provided
herein.
13. Miscellaneous Provisions.
(a) Further Assurances. Following the Closing Date, each party hereto
shall execute and deliver, or cause to be executed and delivered, such
other documents and instruments, and will do and perform all other acts as
may reasonably be required by such other
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party to evidence the validity of, or to perfect the full and proper
performance of this Agreement.
(b) Expenses. Except as otherwise expressly provided in this
Agreement, each of the parties hereto shall bear its own expenses in
connection with this Agreement and the transactions contemplated hereby.
(c) Confidential Information. Each party hereby agrees that such party
and its representatives will hold in strict confidence all information and
documents received from the other parties and, if the transaction herein
contemplated shall not be consummated, each party will continue to hold
such information and documents in strict confidence and will return to such
other parties all such documents (including the Exhibits hereto) then in
such receiving party's possession without retaining copies thereof;
provided, however, that each party's obligations under this Section 13(c)
to maintain such confidentiality shall not apply to any information or
documents that are in the public domain at the time furnished by the others
or that become in the public domain thereafter through any means other than
as a result of any act of the receiving party or its agents, officers,
directors or stockholders, as the case may be, which constitutes a breach
of this Agreement, or that are required by applicable law to be disclosed.
The parties hereby agree that the remedy at law for any breach of this
Section 13(c) will be inadequate and a non-breaching party will be entitled
to injunctive relief to compel the breaching
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<PAGE>
party to perform or refrain from action required or prohibited hereunder.
The remedies set forth in this Section 13(c) shall not be deemed to be
exclusive of any rights or remedies which the non-breaching party may be
entitled to at law, in equity or otherwise.
(d) Amendments; Waiver. This Agreement may be amended, modified,
superseded or terminated, and any of the terms, covenants, representations,
warranties or conditions hereof may be waived, but only by a written
instrument executed by the party waiving compliance. The failure of any
party at any time or times to require performance of any provision hereof
shall in no manner affect the right of such party at a later time to
enforce the same.
(e) Publicity. The parties hereby agree that no publicity, release or
other public announcement concerning the transactions contemplated by this
Agreement shall be issued by either party without the advance approval of
both the form and substance of the same by the other party and its counsel,
which approval, in the case of any publicity, release or other public
announcement required by applicable law, shall not be unreasonably withheld
or delayed.
(f) Notices. Any notice or other communication required or which may
be given hereunder shall be in writing and either be delivered by hand or
via facsimile transmission (subject to confirmation of receipt), or be
mailed by certified or registered mail, postage prepaid, and shall be
deemed given when so delivered
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by hand or via facsimile , or if mailed, three (3) days after the date of
mailing, addressed in each case as follows:
if to ELGT, at:
Electric & Gas Technology, Inc.
13636 Neutron Road
Dallas Texas 75244-4410
Attention: S. Mort Zimmerman, President
with a copy to:
Carl A. Generes, Esq.
4315 West Lovers Lane
Dallas, Texas 752090
if to Provident, at:
Provident Pioneer Partners, L.P.
c/o Provident Industries, Inc.
122 East 42nd Street
Suite 1115
New York, NY 10168
Attention: Nathan J. Mazurek
with a copy to:
Shiboleth, Yisraeli, Roberts & Zisman, L.L.P.
350 Fifth Avenue
New York, New York 10118-6098
Attention: Joshua Glikman, Esq.
The parties may change the persons and addresses to which the notices or
other communications are to be sent by giving written notice of any such
change in the manner provided herein for giving notice.
(g) Binding Effect and Assignment. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of
the parties hereto. No assignment of any rights or delegation of any
obligations provided for herein may be made by any party hereto without the
express written consent of the other party;
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<PAGE>
provided, however, that Provident may at any time assign all or any portion
of its right, title and interest under this Agreement to any of its
affiliates without the consent or approval of ELGT.
(h) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof, and merges
and supersedes all prior agreements and understandings, written or oral,
with respect thereto, including without limitation, the Prior Agreement.
(i) Governing Law. This Agreement shall be governed by, and construed
in accordance with, the internal laws of the State of Delaware, without
giving effect to principles of conflicts of law.
(j) Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but which together shall
constitute one and the same instrument.
[Balance of page intentionally left blank]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ELECTRIC & GAS TECHNOLOGY, INC.
By: /s/S. Mort Zimmerman
S. Mort Zimmerman, President
PROVIDENT PIONEER PARTNERS, L.P.
By: PROVIDENT CANADA CORP.
General Partner
By: /s/Nathan J. Mazurek
Nathan J. Mazurek, President
PIONEER POWER, INC.
By: /s/Nathan J. Mazurek
Nathan J. Mazurek, President
26
